Explore Monex

Beginning of an Upward Move for Gold and Silver Prices?

Jeffrey Christian and Sean Brazney
December 21, 2022
Video Transcript

Sean Brazney: Hello! My name is Sean Brazney, Sales Director for Monex Deposit Company. We have the pleasure of bringing today a video by Jeffrey Christian of CPM Group, Managing Member and Founder of CPM Group, one of the many analysts over there. He is the author of the reports that we try to bring to you and our most current report for this year has been Precious Metals For More Than Just Inflation. I do want to talk about the report, because we’re coming into the end of the year and next year there will be a new theme. So, this is really our last video that we get to do talking about this report. We’re very thankful for Jeffrey Christian and his time and his efforts for putting this together for us and of course for being available for these videos.

When you think about the market and really look at what’s been going on, why do we try to bring this information to you? When you think about inflation when inflation was roaring to the upside, we really had gold and silver trending more to the downside and it wasn’t until inflation started to cool and some of the speculation about the Fed and interest rates started to come into play into the market place, that gold and silver started to jump to the upside. We try to get this information to you so that you can make decisions on how, when to buy, own, or maybe even sell the precious metals that you’re owning. So, this last report that we bring up to you, I think that you really need to spend some time and listen to this video, watch this video, because we are coming into a time frame in the year where inflation is starting to rollover and come down and gold and silver have flying to the upside. It also wants me to remind you about two other special reports that I hope you called in and asked for. One is… Real Reasons to Own Gold. It’s going to be a timeless piece that I think we’ll have available to you for many years to come. I don’t think it’s going to get outdated and it’s available to you now for free as well. Also, Ownership Versus Promises, of course all these reports done by CPM Group. Ownership Versus Promises dealt with mainly the main difference between owning an ETF compared to owning the real physical precious metals. So, if you’re thinking about buying precious metals and looking out over the horizon for other areas where you can be purchasing precious metals, then I think these reports would be real critical in the decisions that you make. We try to bring information like Comex, and whether there are shorts in the market, is this rally really short covering, central bank buyer interest, investor buyer interest. We do that so that you have, again, more reasons other than just inflation to think about owning precious metals. So, we do hope that you call Monex today and talk to one of our account representatives, ask for your special report. You can even call me at my direct extension here at Monex and I would love to be willing to talk to you about the market place as well myself. If you’re dealing with a timely question that you might have, I’m also available for you as well. So, please enjoy this video by Jeffrey Christian.

Jeffrey Christian: Hello! This is Jeffrey Christian, CPM Group for Monex. It’s December 6. Gold is around $1,782, as I speak. Silver is around $23.34. I wanted to talk about gold and silver prices and some of the factors behind the recent upward move. Gold and silver rose sharply last Thursday and Friday. They did so in conjunction with an upward move in other commodities, equity markets, currencies against the dollar, and bottom prices. It appears to us that this is possibly the beginning of a move off of the base that prices appear to have been making over the last few months. It’s a little bit too early to say, but our expectation had been that prices would bottom out in the middle part of this year and start to rise by the end of the year and this could be the beginning of the next upward move.

There were three factors behind the rise in prices last week and it’s very important to understand them. The first one was expectations of slowing interest rate increases. Not a decline in interest rates, but a rate of slowing of the interest rates and that’s interesting, because there was nothing new. I mean, mainstream economists and the broader financial markets have been expecting that around this time the Fed would start to slow down the increases of it’s interest rates. It had surprised many people with 75 basis point moves in the previous two increases in interest rates over the last several months, but the expectation was that by December they might be slowing it down to 50 basis points. That was the consensus in the market. Last week, comments by Jerome Powell, the Fed Chairman and others from the Fed, reaffirmed the view that the rate of increase or the pace of increase in interest rates was slowing, and probably would only be about 50 basis points when the Fed meets next week, and possibly a couple more 25 basis point moves in the first 4 or 5 months of next year, then a plateauing and by the end of 2023 you might see a couple 25 basis point reductions as the economy slows down. So, it wasn’t anything new, but it confirmed the view in the broader markets that… yes, the pace of increase in interest rates is slowing and that was good for gold and silver.

The second factor was signs of declining inflation rates. Again, nothing new. People have been expecting that inflation rates would be slowing down and start to decline slightly over the period of the rest of this year and going through 2023. There are people in the gold and silver market who still talk about hyperinflation, but again the consensus in the broader financial markets and among consumers has been that inflation rates were declining, and they have been for about three or four months in some of the measures of inflation, and that they would slowly decline. No ones looking for 2% inflation any time soon, but the average of forecasts for the end of 2023, so 12 months from now, is around 5%. So, a slow decline, inflation starting to come under control, some secular changes and problems still causing inflation, but some of the cyclical factors that we saw in 2021 and 2022 dissipating, confirmed last week, good for gold and silver, because it means lower interest rates and therefore, we can move up higher. I think I’ve spoken to you in the past, recent past, about the fact that gold has gone from $250 in 2000 to $2,000 in the last couple years in an absence of inflation. Inflation was 2% or 1%, it was less than 2% for most of the period of time from 2000-2020. It only started rising in 2021, but the gold price had already risen 10-fold.

The third factor that helped push prices up at the end of November, was the December roll in the COMEX gold and silver futures contracts. There are no crises or anything, but there was a tremendous amount of open interest in gold and silver December futures and those people who were shorted December contract, as is their custom, were buying back the December contracts and rolling them forward into February and March futures contracts, and that had an upward price pressure for a couple of days. By Friday of last week, the roll was behind the market, the expectations of slowing interest rate increases, and declining inflation had been digested, and gold and silver prices came back off and they appear to be consolidating now. In terms of 2023, Global GDP and US GDP look like they’re going to be very weak. The consensus is that we might see a recession by late 2023 or in 2024 and CPM Group, I think, it has its expectations in the same area.

Right now in the last few weeks, you’ve seen strong industrial production figures, strong consumer spending, strong employment figures; there’s a lot of health in the economy, even as there are a lot of problems. The dollar has responded to all of this by falling, and it should be noted that while the dollar has declined over the course of November into early December, it’s still at very high levels compared to anything that you saw from say 2008 to 2022. So, the dollar has started to decline. CPM Group doesn’t necessarily see that as the beginning of a further sharp decline in the dollar, instead we sort of see that as a short-term phenomenon. We don’t see the dollar falling sharply next year and we don’t see it falling sharply, because for all of the thwarts and problems in the U.S. economy and political system, the U.S. still has a lot of comparative advantages against Japan, Europe, the United Kingdom and we think that those factors will continue to attract foreign direct investment in the U.S. stock market, in the U.S. property market, and that will keep the dollar up, because investors can’t buy U.S. stocks and they can’t buy U.S. properties unless they have dollars to pay for it. So, that’s sort of where we see the world at the end of 2022 going into 2023. None of those problems that have been plaguing the world have been resolved, but investors have backed away from some of the sharper concerns and they see those problems as being less immediately recompelling. They still are aware they’re there and they still expect them to come back and haunt the global economy and financial markets and that will be good for gold over the course of 2023—gold and silver. It may not drive the prices to record levels next year, but it’s probably not going to let prices fall much, and probably prices may well move sideways to slightly higher. Have a good holiday season and we’ll talk to you next year.

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