Mike Maroney Interviews CPM Group's Jeff Christian - March 2018
Mike Maroney: Hi! My name is Mike Maroney and we are here today with Jeffrey Christian, the Managing Director of the CPM Group. It was interesting, because last year, we did a series in 2017 about the Year of Uncertainty, but this year we're working with Jeffrey on Prepare and Diversify in 2018 with gold and silver, because of the transitions that are taking place as far as interest rates and the financial markets. Now, Jeff, we spoke a little bit yesterday about how you felt that the interest rate environment and the transitions in the overall amount of volatility that are taking place here in 2018 would potentially be a positive long-term effect for gold. Can you explain a little bit about why you feel that way?
Jeff Christian: Ok, let me first say, why I don't think it's bad for gold. There are a lot of people who keep thinking that rising interest rates will be negative for gold and if you look at the relationship it's actually about a -17% correlation, which means that most of the time a higher interest rate doesn't necessarily mean a lower gold price. It depends on why interest rates are rising. I think so far, interest rates are rising, because of increased uncertainty in the world that actually can stimulate demand for gold, because investors buy gold as well. So, we're not concerned that rising interest rates will dampen investor enthusiasm for gold or gold prices.
Going to your question, we think we know the world is in a transitory period right now. We've gone through an extended period of about eight years of zero interest rate policies by the Fed and other central banks around the world, massive quantitative supply of money supply in the developed countries, low interest rates, low inflation, low volatility in stock and bond and gold markets, which was interpreted into steadily higher stock and bond prices, low interest rates, and flat to lower gold prices and that eight-year period has ended. We're now seeing interest rates rise and as interest rates rise they usher in a transition to some new economic period, which could last several years, it could last five or ten years at least to tell you the truth, and that period will be characterized by rising interest rates, more volatility in financial assets--stocks, bonds, and gold. That volatility will probably be manifested in the stock market by increased downside potential and that's what you saw starting to emerge in February and March was in this transition period we're moving to a place where stocks can fall and they can fall sharply. We're also looking at a transition to a period where the increase volatility will probably mean lower bond prices and higher interest rates and it probably will be interpreted in gold and silver markets, the increased volatility, as higher prices. So, we're seeing this transition or what the Fed calls, "normalization of financial markets," and it's probably on balance beneficial for silver and gold, because when we move back to more normal markets, we'll find that the economic environment in many countries, such as the United States and Europe, are anything but normal and that's probably going to stimulate a lot of investor interest in gold and silver.
Mike Maroney: Now, interestingly enough, the volatility has been fairly low as far as the precious metals market were concerned. So, this may be the type of year that you want to look at accumulating the metals and if you're looking at holding them for two, three, four years out, potentially that's when the larger gains sit out on the horizon. Is that what your theory is, Jeff?
Jeff Christian: That's our theory of what's going to happen. We think that gold and silver prices will rise to record levels in the period of five to seven years from now. We think it's going to take that long for the economic and financial problems that or will be facing that become severe enough that will have the kind of spasm in the economy that we had in 2007 to 2009. So, what we're telling our investors is this is the period to accumulate when you have relatively low prices. Our clientele is across the market and gold producers and silver producers don't like us saying that there's going to be a period of time when you can accumulate gold and silver at relatively low prices before they rise sharply. A lot of our clients would probably have more business with institutional investors and these guys are shorter-term investors. They get graded by their bosses on their quarterly performance. They don't want to hear record prices in five years, because they need returns on a quarter-to-quarter basis, but a third major component of our client base are wealthy individuals and these are long-term investors who feel very secure and comfortable buying gold and silver at today's prices and holding them against economic problems that may not emerge for five years.
Mike Maroney: Now, it's been interesting, because a lot of people felt that as interest rates were going to go higher that potentially we would see gold, maybe, back down in the low $1,200's, but every time gold is pulled back close to that $1,300 range it seems like wealthy individuals are starting to buy and it's really building a solid base. We spoke a little bit yesterday about... you felt that that base really started to be built back between December 2015 and 2017 and that that base is being established or is already established, is that the case?
Jeff Christian: I think the base was established in December 2015, early 2016, and we're now 12... 14 months past that base. I think we're in a very clear upward trend in gold prices. The trend in silver prices is also pretty much clear too. So, what you're seeing in the last couple months is the price will come down, but when it comes down it doesn't go back to where it was 15... 18 months ago. So, I think, we're in the early stages of a long-term upward move in gold and silver prices that's just starting to emerge and that some investors are just starting to pick up that it's really happening.
Mike Maroney: Yeah, they say I guess the trick to making money is if you can isolate the long-term trend, especially as you transition from either a bear market or a corrective phase back into a bull market and have the capacity to hold the investment...two, three, four years out. But I heard you say, "Record gain." So, you're looking for big numbers in the future.
Jeff Christian: We're looking at gold prices getting up to $2,000, $2,200 by 2023, 2024. We're looking at silver prices getting up to $38, $40 an ounce in the same time period. So, we're basically looking at silver prices doubling from where they are today, more than doubling from where they are today, and we're looking at gold prices rising very sharply to really what would be record levels.
Mike Maroney: Obviously, when markets become emotional, especially the silver market, crazy volatility can kick in. So, just about anything could happen. So, now may be a great time to be accumulating silver with these low prices down in the $16 to $17 range.
Jeff Christian: Exactly! I have to say on a cautionary note... CPM Group looks at the world economy, and the state of financial markets, and the growing debt and deficits, and the United States government and the European governments, and we say that we think that all of this stuff might take five to seven years to really come home to roost, but the reality is that some combination of economic and political events could combine to cause that spasm in the global economy at any point and when it happens gold and silver will move very quickly as they did in the last two or three bull markets. So, what you really need to do is to accumulate your gold and silver now, before the volatility kicks up and before prices start rising sharply.
Mike Maroney: Well, that sounds like a great idea. I think the saying is, "You don't wait to buy. You buy and wait, when you're in one of these situations and it looks like gold and silver is just entering into what could be called the, "Sweet Spot." Well, Jeff it's great talking with you again this month and we look forward to speaking with you next month about this transition and hopefully they'll be some tidbits of information that you can share with our viewers that will give them that little extra advantage as far as trading is concerned. So, thanks again and have a great day.
Jeff Christian: Thank you and we'll spend the next month looking for those little tidbits.
Mike Maroney: Fantastic, Jeff! Take care now.