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Inflation's Impact on Gold

Sean Brazney & Jeffery Christian
November 12, 2021
Video Transcript

Sean Brazney: Hello! My name is Sean Brazney, Sales Director for Monex Deposit Company. I have the pleasure of being here today with Jeffrey Christian, who is Managing Partner and Founder of CPM Group, one of the many analysts there at CPM Group, and the author of our, Better Future with Precious Metals Report. Thank you so much for being with us today Jeffrey.

Jeffrey Christian: It’s always a pleasure to be with Monex

Sean Brazney: Jeffrey, when you guys did the October Report for us, you had some information in there that talked about seasonality in the market and you mentioned some potential lows in gold, you actually put it a $1,725 low for gold in there. Then about October, we actually hit about $1,721, just a beautiful job on those numbers. Silver went down to, I think, $21.41 at a low. I just want to remind our viewers and listeners that we’re trying to have these reports for you to help with the decisions you need to make in your precious metals investments and it is incredibly valuable information. When you look at the rise from those lows, I think today, gold hit $1,870, and silver hit a high of $25.22, would have been incredible returns from those lows. So again, I want to thank you for the information that you’re providing for us.

Jeffrey Christian: I’m glad you like it and I’m glad… I’m happy that we’re right sometimes.

Sean Brazney: The I Print came out today, one of the highest numbers that we’ve seen in almost 40-years, and the inflation that starts to come into the market right now with gold trading at about $1,847, $1,850 or so. Do you see some of these inflationary numbers that are coming out? You think they’ll start to put a floor underneath the price of gold here?

Jeffrey Christian: Yes, I’ll say this…we have been of the school that has said that we thought that inflation was transitory, and for the most part…we still sort of say that. With that said, today’s numbers were startlingly high, they were higher than we saw in June on a month to… on a year-to-year basis and they were as high as we saw in June on a month-to-month basis. So, it was really a shock to the system, if you will., that the financial markets’ inflation was that high. I think it not only puts a floor on the gold price, but it puts a higher floor on the gold price that we had. If you had talked to people before a CPI figure, they would say, well $725 seems like a good floor for gold. I don’t think anybody is going to be saying $725 is a floor for gold now. I think they’re going to be talking about $1,740 or $1760 as a floor for gold and if gold stays above $1,850, as it was when we started this recording, I think that that’s even more bullish. So, I think that it does provide a floor for the gold price and it’s a higher floor than we would have had yesterday.

Sean Brazney: Yeah and you kind of matched that up with a 10-year bond and I’ve mentioned it in a couple of times in our recordings for our viewers to kind of pay attention to that when they’re thinking about their gold. You know, we’ve come up from, I think it was a 1.41% low yesterday and back up to about a 1.55% today. It looks like that we can continue to climb higher on that rate, but if the growth story gets damaged at all the downward potential on that rate may give quite a bit of boost to gold on the upside, and some more underpinning or support for gold. Do you see that potentially playing out?

Jeffrey Christian: I see the interest rate complex pretty much still being very bullish for gold. Yes, we’ve seen the 10-year rate rise today, but it’s 1.55% and you have 6.2% inflation so you’re really talking about an increase in negative inflation adjusted real rates, because the increase in inflation was greater than in the increase of 10-year bonds. So, I think that you’ve got continued negative interest rates. You have an upward pressure on interest rates, which could cause a little bit of a headwind for gold, but it’s probably a bigger headwind for the stock market, and if the stock market sees weakness because of the rise in interest rates, that could stimulate and increase movement of metals into gold. So, a rise in interest rates the first effect might be actually a positive effect on gold and silver prices, and even with the rise in rates, I mean, you have to say 1.55% is still a very low rate and it’s not the kind of 10-year bond rate that’s going to cause investors to say, “I don’t need gold and silver in my portfolio, because I can earn 1.55% before inflation on a 10-year note.” I think that interest rates are still very much a positive factor for gold prices.

Sean Brazney:Yeah, upside targets on that 10-year are looking up around 2.1%, 2.12%, maybe even higher as the trend continues…if it continues in that direction. Are you seeing some of the same numbers up there?

Jeffrey Christian: I would not be surprised to see the 10-year bond testing 2% in January of 2022 and I wouldn’t be surprised seeing gold prices simultaneously testing $1,900 or even $1,920. The peaks that we saw back in June of this year at the same time.

Sean Brazney: Might even be a technical breakout of the upside over some potential buying, it might be nice to see that take off as well with gold. When you think about this inflation print and the stock market and what that may do to overall earnings that we see out there in the stock market, I think you mentioned it here just a little bit ago and I just want to bring it up again, you think that has some potential for maybe a little bit of take some profits out of the stock market and maybe look for some value elsewhere in the commodity sector?

Jeffrey Christian: Yeah, I think that the rise in interest rates…as I said, I think the first effect of a rise in interest rates is on the stock market and we’re seeing that today. It’s actually a positive for gold today going forward. So that investors, and a lot of investors trade stock markets based on valuation models based on treasury rates. So, when the treasury rate goes up, they immediately say, well the stock prices have to be lower so that the PE ratios and the competitiveness of the stock market relative to treasuries is preserved. So, I think the increased pressure on interest rates could have a greater increased pressure on stock market, lower stock prices, and higher gold demand. With that said, I’m not in the school that’s talking about 40%, 60%, 80% decline in stock market, but the stock market is very high and it’s vulnerable with these 10%, 20% corrections from time to time. It usually…it has been bouncing back from them over the last few years, but that’s still a roller coaster ride that a lot of investors don’t want to get on.

Sean Brazney: You know, maybe a nice healthy correction that helps this thing continue on the upside too.

Jeffrey Christian: If.

Sean Brazney: Yeah, the seasonality that you continue to talk about and some of the numbers that you bring up again, I just want to remind our viewers how helpful they’ve been. We have the November, Better Future with Precious Metals Report, and I want to remind our viewers of how valuable that that information has been to me, as I hope it has been for our viewers as well.

We want to remind our viewers to give Monex a call, talk to our Account Representatives, and ask for your Better Future with Precious Metals Report.

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