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Mike Maroney Interviews CPM Group's Jeff Christian - January 2015

Jeffrey Christian and Mike Maroney

In this video, taped in mid-January 2015, CPM Group Managing Director Jeff Christian offers his forecasts and recommendations for investors seeking to take advantage of the opportunities in precious metals in 2015 and beyond.

For more information please get in touch with a Monex Account Representative at 1-800-444-8317.

Video Transcript

Mike Maroney: Good Afternoon! It's Thursday, January 15th and my name is Mike Maroney. I'm coming to you today from the Monex Precious Metals Studio. We have a very special guest today. Jeffrey Christian, he is the managing partner of the CPM Group. Now Monex was extraordinarily fortunate back in 2014. We were able to put together a deal where CPM actually provides us with a yearly review of Gold, Silver, Platinum, and Palladium or the PGMs and then a once monthly review of all three. Now, what we have today is an opportunity to speak with Jeffrey who comes out on a yearly basis and gives a basic presentation as far as the state of the precious metals markets. Without any further ado, I'm going to ask Jeffrey some questions as far as the presentation he made today on the precious metals markets.

Jeffrey, welcome to Monex. Thank you very much for coming out. Needless to say, every once in awhile you'll come out and it'll be a very special day and today was a special day because of the announcement that came out of Switzerland. Could you give us a general overview as far as what they announced and what you feel it meant to the market place?

Jeffrey Christian: Right, okay well first...Happy New Year!

Mike Maroney: Thank you!

Jeffrey Christian: We're very glad to be here. Very glad to be working with Monex and hopefully 2015 will be a prosperous year for all of us in precious metals.

The Swiss National Bank basically has been pegging the Swiss franc to the euro and in order to do that you have to buy and sell euros and Swiss franc in order to try to keep the thing there. The Swiss economy is in better shape than the rest of the European economy. The European economy, the Eurozone, has a numerous problems, the Greeks have an election coming up, the ECB (European Central Bank) is about to launch a large quantitative easing monetary accommodation program which will all put downward pressure on the euro, and basically the Swiss Central Bank and the Swiss franc have been suffering because of the peg to the euro. So the Swiss National Bank today said, " We're going to end that " and It's something that they've been talking about for some time, but today they said, "It's over, we're not going to spend any more Swiss franc trying to defend the Swiss franc and push it down." So the Swiss franc rose sharply against the euro and it rose sharply against a number of other currencies. The gold price rose, I think, because this is just one of those events that reminds investors around the world that a lot of the economic and financial problems that Europe, the United States, and the Global Economy have faced since 2008, they’re still there. In many cases, some of them have gotten much, much worse. I think that the Swiss action was a sign that at the end of the day governments and central banks act in their own domestic best interest and they're willing to sacrifice international cooperation when the pain domestically gets to be too strong. So I think it was a sign to investors around the world that the financial markets remain under great stress and that 2015 may well see much more volatile financial markets than 2014 did.

Mike Maroney: Interesting. Now, I found it interesting today during your presentation. We all know that next week we may see an announcement as far as quantitative easing, but it's being bantered about that when the Greek election takes place, if a certain party is actually elected it's inevitable that the Greeks will be bailing out from the euro and be moving on to something else. Needless to say, I think you clarified it today, but can you talk a little bit about quantitative easing as far as Europe is concerned and what you see as far as the Greek election is concerned?

Jeffrey Christian: Well yes, the ECB has been saying for months that in early 2015 it would embark on another what they call and what Central Bankers call a large scale asset purchase programs, which is what the market calls quantitative easing. Basically, coming into the market buying bonds and pushing euros into the banking system hopefully for the banks to lend them... so that they increase economic activity and turnover within the European economy. So that's coming, it's been well known, it's been well anticipated and it will have to happen because the European economy overall is just too weak and it needs that kind of monetary support.

In terms of Greece, you've got an election coming up and the market has been focusing on the idea that if the Leftist party wins, and it looks like they're favored in the polls right now, that they would pull out of the euro and that's not what they're saying. What they're saying is that they want to renegotiate the 2011, 2012 bailout agreements to make them less onerous on Greece, because they have been extremely devastating for Greece and they probably have been negative in terms of trying to get the Greek economy stabilized and growing again. So the Leftist party has been saying, "If we win, we want to renegotiate our loan agreements." They have specifically said, "They do not want to leave the Eurozone." Basic economic sense says that Greece would go bankrupt if it did remove itself from the Eurozone. So no party is actually saying that, but the market is behaving as if it's a real risk. It's something that is helping support gold prices and the U.S. dollar right now and it's probably something that you'll see a negative reaction in the dollar at least when the election is over and people realize that's not going to happen.

Mike Maroney: Now, interestingly enough, we saw the euro all the way up to 141. Today it traded as low as 116 and obviously the population of Europe is watching the news. They understand that quantitative easing over there looks to be inevitable. Are we seeing strong demand coming out of Europe as far as the precious metals markets are concerned?

Jeffrey Christian: We've seen some increases in gold. Their demand for silver is a little bit less sterling, excuse the pun...I just couldn't resist it, but in Europe there's been a lot of demand for gold. European investors themselves are probably have a greater proclivity toward gold and less interest in silver as you see in the United States, Canada, North America, Europe or Asia, and the Middle East. But you've also seen very strong demand for gold from Non-European investors stored in Switzerland and a lot of people talk about the shift from West to East of gold moving to China. It's true that a lot of gold has moved to China, Malaysia, India, the Middle East over the last seven years since 2008, but the reality is that there has been more gold stacked up in Switzerland since 2008 than there has been stacked up in India...or in China… or actually China and India combined. Chinese demand since 2008 was about 43 million ounces and net investment additions to holdings in Switzerland was about 143 million ounces. So you know the idea that Switzerland, London, and New York are running out of gold doesn't stand up to statistical scrutiny, but a much more important thing is that what you're seeing, gold is not a China story. China is very important to gold, but the reality is that investors around the world are buying gold and they're taking the opportunities of lower prices in 2013, 2014, into 2015 to add to their holdings around the world. It's is a universal investment.

Mike Maroney: Now you talk today about some of the key reasons why you believe the entire population of the world is buying gold. You gave some tremendous reasons as far as the overall catalysts are concerned. Will you discuss a few of those with us today?

Jeffrey Christian: Yeah. Well, I think, one of the things that we've seen 2013 for example, you saw the price of gold fall and the gold price fell because shorter term investors, people who would come into the gold market, many cases for the first time ever 2006, 2007, the prices were rising so they bought. After 2011, the price peaked and it started coming down, so they sold. You had short-term investors getting out of the market in 2013 and that pushed the price down. You had a lot of gold investors who are longer-term investors buy. We actually had on a gross basis a historically high demand for gold in 2013 on a global basis probably in excess of 80 million ounces of gross investment demand for gold. What you're finding is that the people were buying gold as long-term investment are looking much more at the economic and political environment in which they live and in which gold lives and the financial stability of global banking, their own national banks, and their own personal banks where they have their money. So you're finding that investors are keying in on all of these long-term economic problems. Some of the other long-term economic problems that haven't even really emerged for example: structural shifts in the labor market, political problems, the breakdown in international cooperation globally, the breakdown in national cooperation among governments in the United States, Europe, Japan, and several other countries, and greater risks of financial instability. What you're finding is a lot of investors are continuing to buy outsized amounts of gold as long-term investments as hedges against these financial, political, and economic problems, even as the price of gold has fallen and the stock market has been rising.

Mike Maroney: I see. Now in the late 90's, we had the Asian flu, in the early part of the century, long-term capital management, we had the derivative issue with Lehman Brothers, Bear Stearns, but when you look at all of these problems... the problems that exist today are basically the same problems that existed then. So what we've seen is everything has kind of been kicked down the road, as they call it... I guess, "kicking the can down the road." So in essence, none of the problems have really been fixed. So what you're saying I guess is lots of people look at that and say, "Since the problems haven't been fixed, it makes sense to own precious metals."

Jeffrey Christian: All of those events that you sited were symptoms of bigger problems that have not really been addressed, you have financial market regulation, Bear Stearns, Lehman, Long-Term Capital Management. People have been saying that OTC derivatives need to be regulated and they do since the 1980's and we have not seen any effective regulations. Dodd Frank was a disaster in its structure. What we've seen is... here we are it's 2015, so we're 7 years passed 2008 and Dodd Frank has been created, very little of it has been implemented, most of the parts that had been implemented had been then put on hold either because of legal challenges or because people realize that they were structurally destructive of economic value and needed to be rejigged. So the financial market regulation system is probably more precarious now than it was in 2008, 2009 and we've gone 7 years without really addressing those issues, but that's the less important thing. The bigger things are the larger term economic problems. We have a surfeit of labor on a global basis. In the United States, we're seeing strong growth in jobs, but the jobs that are being created are lower paying jobs without pensions and insurance programs and things like that. You're seeing that on a global basis too and that's causing problems, because you have social compacts in Europe, Japan, the United States, Canada, China; around the world you have social compacts between governments and people that the governments will provide social safety nets and those compacts are financially unsustainable...and we've been saying that for 40 years and for 40 years it's been true and for 40 years its become increasingly unsustainable. So you have a labor problem, which is going to get worse, because of computerized manufacturing on a global basis and that will then cause national sovereign debt deficits to increase. You can't solve those things and that will cause the debt to increase, which means that the governments will have to borrow more which will starve the private sector from the capital markets as the governments borrow money to pay for their social service agreements. That's really the underlying economic problem. It's almost an unsolvable equation. I'm sure there are solutions there, but I don't know that any government really knows what the solutions are or they know what they are and they're so unpalatable politically that they are reluctant to implement them. That situation of structural unemployment, excess manufacturing capacity, excess commercial real estate, excess retail capacity, that problem leads to these deficits which even though the U.S. deficit has come down it's still at extremely high levels and could probably be expected to worsen over the next...say 8 years. That leads to growing debt, which further tightens the credit market and that is the underlying problem that causes these other issues and leads to the stress in the financial markets, which causes things like Bear Stearns.

Mike Maroney: How interesting because obviously everybody knows about our published debt upwards of $18 trillion dollars. I think what we're talking about a little bit here today is the unfunded liabilities that exist as far as government is concerned. If the calculations are even close to correct, we're talking an additional $50, $60, $70 trillion. How do we inevitably pay for this and is this a situation that somewhere down the road the printing presses will go out of control?

Jeffrey Christian: That is a risk that the printing presses go out of control and I think when you say, "We," we have to differentiate. I mean, the United States is actually in much better shape than Europe and Japan. We have better demographics. We have a better quality… well we have higher productivity. We have a higher quality of installed capacity across industries and agriculturals. So the United States is in actually better shape. We do need to reduce government spending and we probably need to make several adjustments in our tax code that have been unpalatable since the early 1980's and they just have to be made. It's kind of depressing because if you think about it the changes that need to be made are relatively minor and we could restore the U.S. economy to a much more healthy economic outlook, similar to what we saw in the 50's and 60's even into the 1970's. Europe and Japan are in much worse shape because they don't have the economic strength that we have and they have the demographics moving against them. So they are in much worse shape, but at some point people are going to have to sit down and say, "It's not a matter of making hard choices, the choices have been made for us by economic reality and this is the reality of it all."

Mike Maroney: That was interesting. Back in 2011, we peaked. If I'm not mistaken, I think at the time you ended up calling somewhat of the top in the gold market around the $1,700 that somewhere...

Jeffrey Christian: It's about $1800 or so.

Mike Maroney: Yeah, $1,780 or something along those lines. Needless to say, it came all the way back down. The recent low was $1,143. We talked a little bit today about the ranges that you feel exist as far as the gold market is concerned and last year you projected $1,180 and you thought that we would see a nice rally in the first quarter and maybe even the first half and inevitably we could come back down and retest that area. What are your expected ranges for 2015 as far as gold is concerned?

Jeffrey Christian: Obviously, gold breached $1,180 late in 2014 and we were surprised that it did go down as far as it did. Our expectation is that gold may in fact hold above $1,180, we're saying that a spike down to $1,150 shouldn't be ruled out simply because we saw that last year and we don't think that we're out of the woods right now. We're looking at a base building period for most of 2015, with prices possibly rising. So we're looking at say $1,180, maybe $1,150 as a low and we think the price of gold could rise back to $1,300, possibly a little over $1,300 toward the final quarter of the year.

Mike Maroney: Now, one of the things that everybody seems to be fearful of is the inevitable increase as far as interest rates are concerned here in the United States. When you look at the strength of the dollar and the overall situation as far as the world economy, it's somewhat crazy to think that the Fed would raise interest rates, but today you kind of enlightened many of us on why they're thinking about raising interest rates. Could you share that with us today?

Jeffrey Christian: Well typically, the theory is that you raise interest rates when you're seeing inflationary pressures and you're seeing inflationary pressures when you have strong growth. We don't necessarily have really strong growth in the United States and we're not seeing any inflationary pressures because... a) We don't have strong growth and b) The money that has been created through the quantitative easing since 2008 is sitting in banks--neither being spent nor lent. So we don't see the inflationary pressures and what the Fed is doing is they're acting on a theory-- we're in unchartered territory here. We've never seen a situation where the monetary policy has been as it has been for the last 7 years. We've never seen a situation of extended virtually zero interest rates and I think what the Fed's theory is that they had thought that by driving interest rates down they could stimulate borrowing, but what they did is turned off lending. So banks and financial lending institutions have pulled back from lending to small companies: small business, private business, and consumers. Small companies are the engine of growth in the United States and in most economies. Most job creation occurs at smaller businesses. What we've seen since 2008 and 2009 is that credit has been turned off there due to the low interest rates, because the lending institutions say, " You, the government, want us to lend to these people, but you have taken away the rewards with high interest rates and you've increased the risks and the costs both through regulation and through other problems that you haven't really addressed. So the risk-reward ratio of lending to small businesses and consumers at low interest rates is way out-of-whack and we can earn almost as much by lending to the U.S Treasury or large corporations where we have a much more comfortable risk-reward ratio." So the Fed says, “Let’s raise interest rates and that may rekindle lender's willingness to lend to small businesses that really could get us the stronger growth that we need to get out of this quagmire that we've been in for 7 years now. The problem is that they probably have to raise interest rates really high and it's very scary to change monetary policy and put the entire U.S. economy at risk to test a theory. Now it's complicated by the fact that the rest of the world is in much weaker shape and is moving towards more monetary accommodation. So you had a $5 trillion yen monetary stimulus program announced in late 2014 in Japan. You have the European Central Bank saying that they are going to do another round of massive bond buying to pump money into the economy. The Chinese are trying to manage sustainable growth and while they... it's a yen and a yang again, but they are doing various things that are stimulative as are the Indians, the Russians, and the Brazilians, and everybody else. So you've got a situation where the rest of the world is moving toward lower interest rates and the U.S. is saying we want to raise interest rates at a time when the dollar is already very strong. So in terms of domestic policy and international policy, what you're doing is... you're seeing the U.S. really run counter to the rest of the world. In so far as the U.S. government may want to try and cooperate with the rest of the world, the international stature of the U.S. being much stronger than the rest of the world could also serve as a break on interest rates. We're cautious about interest rate rises and the other thing is that when interest rates do rise, that's not necessarily negative for gold. About half the time you see an increase in interest rates correlate with increasing gold prices. So it's not in itself negative for gold and if you look at the gold market as part of the financial sector you can argue that gold has already discounted an interest rate rise by falling last year, while the stock market doesn't seem to have discounted an imminent interest rate rise. So when interest rates rise, it could be much more devastating for the stock market, which is very nervous and tenuous at close to historic highs and it could be much more... it could be worse for stocks which could actually help support gold prices.

Mike Maroney: Now it's interesting because if you look at the bonds, they're at historically low levels. If you look at the stock market, it's making new all time highs. You made some interesting points today and I heard some statistical information. When you look at what American companies are doing with their money, doing with their earnings, you talked about the fact that they're not spending it on new buildings, new machines, they're basically reinvesting. Can you explain a little bit about what they're doing?

Jeffrey Christian: Well, what's happening... you've seen profit levels hold up relatively well and it's not because the companies are growing they're sales, profits are kind of flat, but what they're doing is they're decapitalizing. They're not taking their profits and hiring people, building new factories, buying equipment for those new factories so much. What they're doing is they're buying their stock back and that drives the stock price up and then you have the trend followers saying now stock prices are rising so we're going to pour in there. So it's good for stock prices on a short-term basis, but it’s a very bad sign for long-term economic growth prospects of the United States. It's basically, these companies are decapitalizing; they're taking the money out of their companies and they're not investing in future growth and not investing in future jobs and that's what's one of the major factors that's been pushing U.S. stocks up. That's why if you look at 2014, we had a very strong stock market for a second year in a row in 2014, but you had four periods of time where you had a 6-12% downward draft in stock industries because the market is extremely nervous. People or stock market investors are increasingly becoming aware that what's happening in the stock market is that share prices are being goosed by these stock buy backs and that... it's sort of... it's a piece of string that you're pushing out and you can only push it out so far. So what we saw last year, was as I said, four bouts of massive profit taking that sort of scared people for a day or a week and then it went away. We think what you're going to see in 2015 is more frequent, more volatile bouts of profit taking because as the stock market continues to rise people become that much more nervous.

Mike Maroney: I see. I think what the precious metals market's fear the most is this inevitable increase in interest rates, but what it could affect the most is the price of stocks and if we see the stock market sell off, do you believe that we'll see sector rotation into the precious metals markets?

Jeffrey Christian: Not dollar for dollar, but you will definitely see some of that money that's in the stock market come out of stocks and go into gold and silver and maybe platinum and palladium as well. You've seen it in the past. We saw it in the first quarter 2014, exactly what was going on. The gold price which had been down in 2013 was very low, it started to rise and stock market actually the first bout of that weakness came across in the first quarter of 2014 and you saw some of that money go back into gold and silver. It's very interesting, because some of the institutional investors who had gotten out of gold in 2012 and 2013, the shorter term trend followers were saying, "Okay gold is falling, stocks are rising, I'm getting out of gold I'm going into stocks," some of those guys reestablished gold positions the first quarter of 2014. They got out in the second quarter when the gold price fell back, but that told us that not only do you have the long-term investors staying in the gold market, but those short-term more opportunistic fund managers will come back as soon as they see profit potential in gold, which is one of the things I think you're seeing in the first two weeks of January.

Mike Maroney: Interesting. Now we talked a little bit about gold today and in the silver market we hit a low of, I think, intraday on the day that the Swiss referendum didn't pass. They had a $14.20 trade, supposedly in the futures market. We never saw it... $15.40, $15.50 was the lowest we saw here in the United States. Give me a little insight on your range as far as silver is concerned.

Jeffrey Christian: Well, we're still concerned on the downside. Just as we were last year, we think that you'll see a strong market for silver and gold in the first quarter, and then you'll see some weakness in the second quarter, and in the second half you can pickup. So we're telling people that we wouldn't be surprised to see $15 tested again, frankly $16 may prove to be the base. There are a lot of people who are waiting to buy silver it seems and there is a lot of investor demand for silver. What we're finding is that investors are sort of waiting for a real confirmation that the price of silver can rise. So $15, $16, probably is a low. We wouldn't be surprised to see it $22, $23 by the end of the year with possibility of higher prices later. I should say the silver market right now is an investment demand, which it's off from its peak two years ago, but it's still pretty high. There are a lot of investors who are buying silver, we saw record levels of silver eagle sales in 2014 and we're seeing a pretty strong demand in the first couple weeks of this year, but it's also fabrication demand. Jewelry demand is rising. Silver products in India, China, and other countries are rising. Silver use in solar panels is increasing and various other applications too, including electronics. So you have a relatively healthy fabrication demand as well as an investment demand.

Mike Maroney: So you think there could be some trading opportunities in the silver market based on that expanded range then?

Jeffrey Christian: Exactly.

Mike Maroney: Now, obviously, here at Monex we also represent the PGMs, palladium, and platinum. Interestingly enough, palladium has had a heck of a day today; it's come down to the lower end of your range. Give us some insight on your views of the PGMs, platinum and palladium?

Jeffrey Christian: Platinum and palladium have very strong fundamentals. You've seen a 20+% decline in platinum production in South Africa, the major producer. You've seen a similar decline in palladium and South Africa produces almost as much palladium as Russia does. So you're seeing mine production decline. Russia is important, more important for palladium, but also is important, it's the second largest producer of platinum and the Russian tensions with the United States run the risk of interruptions in those supplies, probably relatively low risk, but the market is nervous about it. You're also seeing stronger demand for platinum and palladium in autos. Europe is a much more platinum intense auto market and European auto sales actually were relatively healthy last year. They started to trickle off toward the end of the year and they're facing an uncertain 2015, but we've seen relatively strong demand for platinum and palladium in the auto industry in fabrication demand. So it's got pretty good fundamentals per say. What's happen with platinum and palladium is that you have a lot of investors who bought a lot of metal, millions of ounces in 2000 to 2007, 2008, and then they got hit by the volatility in prices 2008 to 2011 and it's stay-able liquidation, it's just getting out. A lot of these guys have very large profits in their platinum and palladium, but they're tired of the volatility. So they've been sellers 2012, 2013, 2014, and in 2014 you had this massive strike in South Africa. South African producers didn't want to lose the auto industry and other industries as fabrication outlets for their metal. So they built up inventories earlier before they precipitated the strike, and then they sold those inventories into the market to keep the prices stable, and then you had the stay-able liquidation also keeping the price stable, and then other investors said, "Okay, well here we are facing a six month strike in South African industry and the price isn't rising, so if the price doesn't rise during this strike, what happens when the strike settles?" So they added to the selling. Then the strike was settled at the end of June. We had a ramp up period during the second half of the year. You still have all of these structural problems in the South African industry, you still have the problems between Russia and the United States, the question much longer will this stay-able liquidation go on? I think one of things you saw go on with palladium is the prices were off sharply today, but it was actually up sharply a couple of days ago and what you're seeing is people taking the opportunity of that spike up to resume some of that selling, but we look at the numbers, we have estimates as to how much platinum and palladium are purchased in the turn of the century, the first decade of the century. We have estimates of how much was sold since 2011 and our view is that probably 2/3 of the metal that was added to inventory has been sold, at least 2/3, so that this period of stay-able liquidation is probably over. Putting it in a different term. The platinum and palladium markets have been living off of sales of investor inventories and when those inventories either run out or the investors decide to stop selling prices of the platinum and palladium probably are going to rise significantly, because they're going to have to induce new supply and or induce reductions in fabrication demand.

Mike Maroney: One of the issues over in South Africa is the power issue and they’re nowhere near close to fixing that problem. Is that correct?

Jeffrey Christian: They had a major power problem in 2008 and they've stumbled along for the last several years. Then last week, the first week of January, Eskom, which is the state electricity utility, announced that it was doing what they called, "load shedding"-- cutting back power supplies to various large industries, including the platinum mining industry. So that also should be supportive. Yes, while they have made some progress in repairing their system since 2008, they have a long way to go and they have a relatively vibrant economy with a lot of people who want more electricity, not less. So they're going to continue to have power problems for years to come.

Mike Maroney: Now do you see any changes as far as the catalytic converter laws are concerned? Or do you potentially see more and more demand based on Brazilian, Chinese demand from some of the third world nations?

Jeffrey Christian: Well, most countries now have catalysts or emissions standards in place that require catalysts to be used and those laws generally speaking get tighter as time goes on. So the Chinese, and the Indians, and the Brazilians are tightening their regulations as are the United States, Japan, and Europe going forward. You're seeing increased demand for PGMs in auto catalysts because of that tightening and also because on a global basis the auto population and auto sales continue to grow. Last year was pretty strong for the United States and China, which are the two largest auto markets and that's probably going to continue. So you have stronger growth in auto sales with more catalysts being used because you're selling more cars with tighter standards increasing the loadings of PGMs of platinum, palladium, and rhodium on those catalysts. So all that's supportive of higher prices. There's always a risk of substitution away from it, but that risk has been there since the late 60's, since before we started using catalysts and the technology has just never been developed that can compete with PGM catalytic converters.

Mike Maroney: So a lot of the overhanging supply that was bought at much lower prices... that's been sold into the market. It's not as if the world central banks hold on to palladium and platinum. So if we see any sort of decrease in supply and demand continues to increase in such a thinly traded market, these are markets that we could see dramatic spikes in price?

Jeffrey Christian: Yes. Now if you look at the platinum market, as I said, South Africa is the largest producer, it's the largest source of metal, and there's also stuff that comes out of it from scrap, they probably need $1,700 or $1,800 platinum to be profitable on a sustainable basis and that's if they were really well run. Some of the South African producers say they need $2,000 or $2,200 for platinum to be long-term profitable. So you've got an industry that needs significantly higher prices. We're at $1,200 today, right? $1,250, $1,260 you have an industry that supplies most of the platinum to the market, to the global market, that needs substantially higher prices, you know 50% higher prices. They will get those prices one way or another. Either the market will rise to a level where they are profitable and they can continue to be in business or the market won’t... the prices won't rise and they will be scaling back further. As I've said they've already lost more than 20% of their capacity over the last 6 years, 8 years and they stand to lose another 10-20% easily, if the prices don't rise. So it's just a matter of timing. Is it this year? Or is it two years from now? Or is it four years from now? You can look at the platinum industry and the palladium industry and you can say these are industries that require higher prices to be sustainable if the world is going to continue to use these things and the world is going to continue to use these metals because the world wants the electronics and they want the autos and they want the other things that use platinum and palladium.

Mike Maroney: Interesting. Could you give us your ranges for platinum and palladium for 2015?

Jeffrey Christian: Well platinum... like gold and silver...they remain vulnerable, spikes down. Platinum... $1,150 or $1,170 as a base and then the price is going to rise. If I think that gold might go to $1,300 by the second half of this year. I think that platinum could go to $1350 or $1,400 and again as you said, these are really small markets. So it takes very little investment demand to drive platinum back to $1,400. Palladium, we thought that $770 was a base. I don't know that we're very far from that today and we still think that palladium is probably got a long-term base of $770. We wouldn't be surprised to see the price $850, $900 in the second half of this year.

Mike Maroney: It's interesting. I think there's a saying in the commodities, "The longer you base, sometimes the higher you raise." We talked about some of the short-term projections and what it sounds like to me is the PGMs may have extraordinarily long-term volatility sitting out on the horizon with much, much higher prices possible.

Jeffrey Christian: Yes, Yes. I mean... again because they're small and because you have these structural problems in the South African industry. They should see significantly higher prices in the future, platinum and palladium, but gold and silver they respond more to economic realities and investor's perception of those economic realities. We think that on the longer-term basis they also will rise very strongly. We just think that the consolidation period that we saw in 2014 is going longer. That base building is longer than what we had expected it to be. We think that 2015 would be relatively modest, some increase in volatility in gold and silver, much bigger increases in stock market, bond market, currencies, which we're already seeing and then beyond 2015 we think the scope for higher prices in gold and silver really exist too.

Mike Maroney: So the move from the lows in 2002 to the highs in 2011, a tremendous leg in a bull market, we've had corrective activity, consolidation base building, do you see a potential five, six year bull market sitting somewhere out on the horizon as far as the metals are concerned? Or maybe even a leg to new highs?

Jeffrey Christian: The paternoster that we use is that what we have been seeing since 2012 is a cyclical dip in a secular bull market, secular being the long-term. There's a secular bull market in gold and silver. You have more investors buying more of these metals for economic... really good economic and political reasons around the world than ever before in history. We saw that reflected in strong prices from 2000, 2001 into 2011 and since 2012 we've seen some profit taking on a cyclical basis, but all of those factors that have stimulated this upward shift in the investment demand for gold and silver remain in place, some of them have gotten worse. We think that at some point, 2016 happens to be an election year in the United States, maybe it's 2016, maybe it's 2017, we think that at some point you will see investors stop being bargain hunters and start being net accruers of increased amounts of gold and silver, which will be reflected in sharply higher prices. We would expect gold prices to reach new record levels probably within the next 5-10 years. Silver we're a little more cautious on because it's a much more volatile market and it has some fundamentals going against it that gold doesn't have, which is-- I'll put in a plug-- discussed in the Annual Gold and Silver books we just produced for you.

Mike Maroney: Fantastic! Well, I've been in the commodities business and the precious metals business for 30 years. Jeffrey has been in the commodities business for 40 years and when I think about the CPM Group and I think about Jeffrey Christian I like to call him the voice of reason. Hopefully today you've gotten a little bit of a snippet of the type of information that this man provides as far as the precious metal industry is concerned. That's why we went out and brought the CPM Group in to provide the yearly reports and the monthly reports. So if you're interested in looking at an investment that may be in the process of putting in a long-term base and giving you a tremendous long-term upside opportunity, I think you should definitely give us a call. We have a tremendous report on the PGMs, which we talked a little bit about as far as platinum and palladium, gold long-term putting it into a solid base somewhere in the $1,100 range, and my favorite has always been the silver market with a possible ranger this year of somewhere between $15 to $22. Some tremendous opportunities as far as short-term trading opportunities are concerned, but when you think about the long-term potential it may be one of the best times to give us a call for these special information packages.

Jeffrey, I want to thank you. What a tremendous job you did today and we'll look forward to seeing you again soon.

Jeffrey Christian: I look forward to being back.

Mike Maroney: Thank you very much.

Jeffrey Christian: Take care.