A Year for Accumulation, Jeff Christian November 2019 Part 1
Sean Brazney: Hello, my name is Sean Brazney, Sales Director from Monex Deposit Company. I'm here with Jeffrey Christian, Managing Partner and Founder of CPM Group and the author of our Year for Accumulation Report. Thank you for being with us today Jeffrey.
Jeffrey Christian: It's always a pleasure to be with Monex.
Sean Brazney: Jeffrey, when thinking about accumulation, we tend to think about accumulating at a lower price so that we have a higher price later. During this uptrend in gold, gold's been extremely strong and has settled into this $1,480 to $1,520 range. Do you see anything moving forward, maybe with China and the trade talks that might give us a better low to think about or do you think this is a range that investors should be considering to accumulate in?
Jeffrey Christian: I think that this is the range at which people should be accumulating. I have a reputation for being a value investor, liking the buy low and sell high, but another part of my reputation is to not be afraid to buy into strength. So, in 2006, 2007, as the price went from $500 to $600 to $700 to $800, there were clients of ours who were saying, "Well, the price is rising now, it's at near record levels, should I pullback from buying?" Our comments and advice to them at that time was, "No, buy into the strength. This thing is not coming back down for a while it's going much higher for the next couple years." I sort of think that we're in the same place now with gold and silver, at least going forward. We had told our clients we thought that there could be weakness in late October, early November. So, I think this $1,480 to $1,520 range is the weakness. Yeah, there is a possibility that it could spike below that, but at this point from a longer-term and intermediate-term investor's perspective, I think, this is the level where you buy and you buy into the strength and you become less hesitant to buy into a rising market, because I don't know that you get the buying opportunities on the dips that you've gotten over the last few years.
Sean Brazney: Now, we did see investment demand pick up when gold broke out to the upside in May and June when the Fed changed their stance on monetary policy and the investors that I'm talking to now seem very intense on holding onto that gold, which I do think it will help support the price levels that we're at, but now that we've been through three different rate cuts, what do you see moving forward with the Fed?
Jeffrey Christian: I'm not sure that the Fed is going to cut again yet this year and I'm not sure that they will cut next year. Our economic outlook is that we avoid a recession, but we see lower growth and the Fed clearly sees that it has room to cut, because inflation is not picking up, but again I think that what you're looking at is a period of weak economic growth, sub-par economic growth, not only in the United States, but on a global basis, and in that kind of environment precious metals makes sense as a portfolio diversifier.
Sean Brazney: Also in regards to silver, silver seems to be acting a little bit more like an industrial metal rather than a monetary metal. It really seems to react on any kind of news of a contraction out of China or the U.S., but it's been kind of confusing when just watching headline news. So, are we growing or are we heading for a recession?
Jeffrey Christian: I think we are headed toward a recession, but I think it's years away. I think that we're in a period of slower economic growth, but continued growth, relatively stagnant economic activity at least in the United States. Obviously, that can improve if we get over the trade wars and move beyond that, but there are a lot of things that are suggesting that both on a short-term cyclical basis and on a long-term secular basis, we probably will see lower growth over the next few years rather than compared to what we've seen over the last few years. Recession is probably somewhere off in the distance, but when it comes, it probably will be more severe. The longer we wait before we see that recession, probably the greater the downward reduction will be.
Sean Brazney: I still have not heard about the Fed ending QT or quantitative tightening, but the dollar seems to be breaking a longer-term monthly chart and is starting to show more of a negative correlation to the dollar after a long positive correlation... excuse me, to gold... after a very long positive correlation to the two. Do you think this might be pointing to some early signs of the dollar heading lower and gold still having a chance to head higher from here?
Jeffrey Christian: Yeah, I think they've decoupled. Gold and the dollar were both rising together earlier, because they're both the ultimate... those are the two ultimate safe havens. We've seen enormous amounts of money sidelined by investor's financial wealth sitting in money market accounts and CD's, because they don't want to be in stocks and bonds. We've had this period where the dollar and gold were rising. The dollar is now showing some weakness and I think that that actually is a positive factor for gold, because what I think you're seeing is decoupling. Where gold still makes sense as a portfolio diversifier, but you have a number of investors who say the dollar is probably at its near term peak and is overvalued and likely to come down, and you have other investors who were buying the dollar, because they needed dollars in order to participate in the U.S. stock market. With the stock market at new highs, even as we're seeing billion dollar losses at Uber and other companies per quarter, with the U.S. stock market at very high levels and expectations are stronger than expected growth not only in the United States, but also in Europe and in other countries, I think you see some of the international investors moving away from the U.S. stock market, so they need fewer dollars to buy into the U.S. stock market. They may be even taking profits now that we're record highs in the stock market and moving some of that money into other currencies. So, I wouldn't be surprised to see a decoupling where the dollar moves somewhat lower over the next three or four months, even as gold moves higher.
Sean Brazney: Well Jeffrey, your time and data is extremely valuable as always. We really appreciate your time and spending this on our Year for Accumulation topic. Call Monex today. Talk to an account representative and get your free Year for Accumulation Report.