Mike Maroney Interviews CPM Group's Jeff Christian - January 2018
Mike Maroney: Good Afternoon! My name is Mike Maroney and I'm here today with the Managing Partner of the CPM Group, Jeffrey Christian. We are very fortunate here at Monex to have Jeffrey Christian doing a special monthly video series to help inform our customers of the current situation that exists in the precious metals market and where Jeffrey sees the metals potentially headed.
Jeffrey, Happy New Year! Great to chat with you. I'm very excited about this, because obviously, you're probably one of the top experts in the world on precious metals and we've had some really exciting action in the market. We've seen gold bounce off the $1,240 area and track all the way up to $1,360. Jeff, where do you see gold headed in the short-term and do you think that the current action in the U.S. dollar is the real driving force behind this move?
Jeffrey Christian: I think there is several factors behind the move right now. I think, the weakness in the dollar is definitely one of them, but I think there's a bigger change in investor attitudes. You know, for a couple years, investors have been worried about the Fed raising interest rates and having a negative effect on gold prices and I think that investors are walking back and away from that now. I think their looking at gold and other commodities and they're saying that these things really represent good value at these levels, especially given when you compare them to say... the stock market or the bond market. So, I think, that there's a broader rekindling of investor interest that we're seeing. There's also some seasonal factors. There's some gold buying in China in advance of the Lunar New Year in February. So, I think, there are a variety of factors that are kicking in and in the gold market... as soon as people start buying, other people stop selling.
Mike Maroney: It's interesting, because if you look at the commodity markets overall and you look at the CRB index, the amazing thing based on where the U.S. stock market currently sits in comparison to commodities, we're still right at or a little bit below the price levels that we saw in the 2009 bloodbath sell-off in commodities. So, there's a lot of room for commodities to potentially head higher.
Jeffrey Christian: Yeah... gold and commodities and gold is quite distinct from other commodities, in that it's really a financial asset, but all of these things have relatively low prices and relatively low volatility, while the stock market is going from record to record with relatively low volatility. One of the points we keep making is that at some point the volatility is going to move back toward historically more and more… more typical levels and when that happens it's going to be bad for stocks and it's going to be good for gold and for commodities.
Mike Maroney: That's interesting, because a lot of people have a tendency to get excited and typically here people have a tendency to buy the highs. We just rallied $110, $115 in gold. Where do you see gold potentially pulling back to or do you see gold potentially pulling back in the near term?
Jeffrey Christian: We thought that the price could get up to around where it is now. We thought $1,350 in January. We were looking for it to pull back to $1,280, possibly as low as $1,250 in February and March, and then basically trade between... say between $1,250 and $1,350 in the second and third quarter before starting to head higher toward the end of this year.
Mike Maroney: It's interesting, there's a saying, I think, in the commodities, it's... the longer you base potentially, the higher you raise, and we've been putting in a solid base for the last three or four years. You believe then 2018, maybe 2019, is when we potentially get the break out that a lot of people are looking for?
Jeffrey Christian: We're watching a range of economic and financial and political issues that could be positive for investor demand for gold. We're not sure when they will come home to roost, but we do believe they will come home to roost. It's just a matter of timing. Our best guess is, yeah, the fourth quarter of this year or into 2019, you'll start seeing these markets move smartly higher.
Mike Maroney: You know, we were extraordinarily fortunate a couple years ago to develop this relationship with you Jeffrey. As a matter of fact, back in 2015 of December, you called the bottom somewhat in the palladium market. You had felt that was going to be the metal for the next couple years. Holy cow! We got a lot more than a lot of people expected. What are you looking at as far as the PGM's are concerned?
Jeffrey Christian: Well, it's interesting. I mean, palladium looks really top heavy right now, but I think it has some room to go further. Simply because the conditions that push the price higher are still in place and those conditions are tight relatively, tight supply, stronger fabrication demand in the Auto industry where palladium is used for auto catalysts and gasoline powered vehicles and increasingly in diesel powered vehicles too. So, you have strong fabrication demand, you have relatively tight supply, you have ongoing supply and production issues facing the South African Industry, and then you have a lot of congestion in the New York mercantile exchange palladium contract, and that has been... that has provided the occasion for spikes higher made last year, August and September of last year, November and December of last year, and it will probably do so in February and March, because that situation has not resolved itself. It's a supply situation on the IMEX. As long as that's in place, I think, this price can go higher. At some point, we do think it will come off on $100 or so, but we're looking at palladium prices staying strong for years to come.