Sean Brazney Interviews CPM Group's Jeff Christian - May 2019 Part II
Sean Brazney: Central Bank buying has been very supportive of the gold price and you and I, I think you've even talked about that in past interviews. In A Year for Accumulation Report, you do mention Russia, China, and Turkey, as being the most recent Central Bank purchases. Do you think that's a trend that will continue, whether it's those Central Banks or others?
Jeffrey Christian: Well, Russia, China, and Turkey are special situations, but one of the things we've seen over the last 15-18 months is that other Central Banks have come in as buyers and those Central Banks are buying gold to diversify their monetary portfolio, 62% of their foreign exchange reserves are in U.S. dollars, the dollar is very high, the U.S. government is being belligerent not only to the Chinese government, but to a lot of other governments. So, there's a desire to diversify away from the dollar and some of that money is flowing into gold. The fact that the gold price is $200 lower than it was in January 2018 helps those Central Banks justify gold, because the dollar looks high, they own dollars, and gold looks low. So, its selling your dollars, taking profits from recent increases in the dollars, and moving into a lower price asset, in essence buying straw hats in September and then looking to sell them again in May. If you see the dollar start to fall or if you see the gold price start to rise, some of those Central Banks will pull back. Russia and Turkey have particular issues politically with the United States, but also with the rest of the world. So, they've been much more aggressive buyers and they're buying is not just predicated on the idea of diversifying their portfolio of currencies on a monetary assets, but more related to the political problems that they're having with the United States and other countries. Then China continues to buy gold, because it has so much of its monetary reserves in U.S. dollars and other currencies that it accumulates because of its export policies.
Sean Brazney: Now, my last question has to do with silver. Silver has been trading at about a dollar off of its 10-year lows. I am a firm believer in trying to accumulate at the lows. Can you give us a few compelling reasons to be accumulating silver for our portfolio?
Jeffrey Christian: I'm not a believer of the theory that what goes down must come up. We've seen commodities that have gone away, but silver is not one of them. I think, the most compelling reason to buy silver at this point is the fact that the price of silver is down from its highs and it is at relatively low levels. Silver is a financial asset like gold and it will continue to see investment demand for silver, especially as we go down the economic path and things become less rosy than they are now and we start looking at the potential of a real recession at some point in the next 3-5 years in the United States. So, I think silver will do well as a financial asset, but it's also an industrial metal. Two of its biggest growth areas have been electronics and also solar panels, and those continue to be very healthy. The solar panel industry has been a repeatedly surprise year-in year-out by the fact that people keep buying more solar panels, even as some government programs that subsidize these have gone away. So, you're starting...you're continuing to see strong silver demand in the solar panel industry. You're also seeing silver used in a wide range of electronics, which continue to grow, because everybody uses electronics doing everything that we're doing these days. So, the fabrication demand for silver remains relatively strong.
So, if I had to give you three reasons to buy silver, one is that fabrication demand is strong, second one is that investment demand is very low right now, but it's probably bouncing around the bottom and will increase at some point in the next three to five years in a way that will push the price higher, and the third one is that the price is very low and what we've seen over the last several decades, the last 50 years of modern precious metals markets, is that the silver price does rise and it does rise sharply at times--1980, 2011. It will rise again. So, that from a capital appreciation perspective, silver at current levels is extremely attractive.
Sean Brazney: That was Jeffrey Christian helping us dig into some of the information in our Year for Accumulation Report. Please give Monex a call today for your free report.