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A Talk About Inflation and Platinum Prices

Jeffery Christian
March 29, 2021
Video Transcript

Jeffrey Christian: We don’t see inflation as being a problem. We see… we continue to see deflation being a problem. High unemployment, not only because of the pandemic and the economic lockdown, but on a long-term structural basis globally. You have surplus labor, you have surplus commercial real estate, you have surplus manufacturing capacity, you have surplus retail capacity and the pandemic and lockdown have exacerbated all of these long-term trends, as has the movement to computerize manufacturing, computer assisted manufacturing to computerized manufacturing, computerized farming now, where you have robots in the fields instead of laborers, and computerized services. There are any number of fast-food restaurants that are getting rid of their servers. They are going to an automated kitchen and ultimately an automated counter. So, you have systemic secular long-term surpluses in real estate, office space, retail capacity, labor and manufacturing, not only in the United States, but on a global basis, and that’s probably going to keep inflation low.

Now, we saw CPI come out for the United States this week and it was… 1.7% was the headline, 1.7% annualized increase in inflation. If you break it down, we always look at core inflation, which excludes food and energy, because food and energy prices tend to be very volatile, and in fact, last month most of the increases were in food and energy. Food was up more than 3% overall, both food bought for consumption in the home and food bought for consumption outside of the home—carryout, takeout. Energy prices were very high and one of the biggest energy price increases was in natural gas, what they call pipeline distribution of gas, but you also saw other things. If you take out those volitive food and energy factors, what you found was about 1.3% increase in core inflation and if you break that down, what you saw was actually some deflationary pressures especially in services, in transportation services, which are off from where they were a year ago, and you saw 1.3% increase in non-energy, non-food materials, the Bureau of Labor Statistics call them commodities, and about a 1.3% increase in services. So, we don’t necessarily see a lot of inflationary pressure. The Fed keeps talking about a 2% target, even on a headline basis we are not there, and on a core basis we are not there either. So, we’re not particularly concerned about inflation and we don’t think that that’s going to be the major factor driving investors into gold and gold prices higher. We still think that a $28 Trillion dollar debt load at the United States, a $2 Trillion dollar deficit on an annual basis and a variety of other economic and political issues are probably going to keep investors interested in gold.

Now, one of the things that we see, and here we are a little bit conflicted, is the dollar and gold. Historically the relationship is not nearly as tight as people think, a lot of people think that gold trades against the dollar and it doesn’t. About a third of the time, since 1968, when gold prices were free to flow, about a third of the time, you’d see the price move in the opposite direction to the dollar. So, two-thirds of the time they don’t, relatively and coordinated. There are times when the dollar and gold both rise and those are times of economic, and political, and financial market instability. Sometimes when you see these kinds of problems, people will pour all of their money into the dollar, because they think the dollar is undervalued and it’s a good place to park your money. Other times, they’ll pour their money into gold, because they think gold is undervalued and the dollar is overvalued, and then there are times like now, when a lot of people think the dollar is undervalued and gold is undervalued. Our view of the dollar is that the dollar is going to move sideways in a volatile fashion with something of a downward bias in the near term. Longer term, we think the dollar is going to hold up very well, because the U.S. economy and the U.S. political system, for all of its thwarts, is better off than Europe, and Japan, and Switzerland, and other parts of the world. So, we think the dollar will hold up well and over the next year, two years, three years, five years, we think that you could see a situation where both the dollar and gold prices rise together.

The final thing I wanted to talk about moving away from gold is platinum. Platinum prices have done very well. They got over $1,300, ahead of where we thought they would be, they’ve come back off in their trading about $1,200. Our expectation is that the platinum price may well be sort of flat around $1,200 for the next three to six to nine months. So, I think it’s a good buying level. People are asking us… do you think that you should wait and see if the price goes back to $1,100 or thereabouts? It’s possible, but I don’t think it’s going to happen. There’s a lot of interest in platinum on the part of investors worldwide, they’ve stepped up their platinum purchases. They’re looking at the shift from palladium to platinum in auto catalysts, they’re looking at an auto industry recovery, and there’s some concerns about disruptions in South African production, possibly from the continuation of the COVID-19 pandemic down there, but actually more likely because of electricity disruptions in South Africa. So, our expectation is that the platinum price is going to rise in the next two, to three, to five years and we are interested in buying. I wouldn’t necessarily wait to see lower prices to buy my platinum. I think the price around $1,200 are probably a relatively good level to buy. That’s all for March. I’ll talk to you next month.

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