Mike Maroney Interviews CPM Group's Jeff Christian on July 2018
Mike Maroney: Hi! My name is Mike Maroney and I am here today with Jeffrey Christian, the Managing Director of the CPM Group. Each month, we do a brief video to talk about the conditions that exist in the precious metals that affect the price. Well, first of all, great being with you today Jeffrey. How are you?
Jeffrey Christian: Very good. It's good to be in July, yeah?
Mike Maroney: Yeah, it certainly is. It's a wonderful time of year. Now, interestingly enough, the last time we did a video, Jeff, we were up in the $17's and at that point you felt that the metals both silver and gold were getting a little bit toppy, and thought that silver could potentially test the $15.80 area and that gold could potentially test the $1,240 price zone. Sure enough, we pulled back in silver down to $15.74 and gold hit an intraday low of $1,238. Now, since then, we've seen a little bit of a bounce back to the upside. Gold, today, went as high as $1,264 and silver in the spot market went as high as $16.17. Now, obviously, we have the Fed coming up, we have a lot of different economic announcements, but at this point, Jeff, do you feel that the metals are out of the woods, as far as the correction is concerned? Or do you... still believe that a potential buying opportunity may sit out on the horizon?
Jeffrey Christian: We are concerned about the weakness that we've seen. Yeah, we expected the prices to come off. They were a little bit weaker than we thought, especially in gold. We think that you're now in July and August, into a period of seasonal weakness for investment demand, fabrication demand, and the prices for gold and silver. We think that's going to continue. We think that July and August, we'll see prices sort of tread water. Gold may be a little bit weaker than silver. We wouldn't be surprised to see gold come back and test those lows that we saw a couple weeks ago. Silver, we may not go back to $15.80, but we don't see the prices running away on the upside or the downside in the next few weeks. We do think that the prices will start to rise and that September and October, we'll see higher prices as investors come back into the market as well as fabricators. But for the next couple weeks, we think that the prices sort of move sideways and yeah, as you put it, there might be some very interesting buying opportunities in gold around the recent lows and in silver around the recent lows or around current lows.
Mike Maroney: Now, obviously, a lot of people have watched the dollar. The dollar popped up, the DXY hit a high of around $95.60, and we've since broken back below $94. I think, if I'm not mistaken, you still feel that the dollar has a little bit more room to the upside, is that correct?
Jeffrey Christian: It has a little bit more room, but I think you've probably made a lot of the upside. You know, it's a bit of irony here. Part of the reason for the strength in the dollar is concerns over the trade war, which is being... trade wars, which are being inspired by the U.S. government's saber rattling. So, even though it's the U.S. that's threatening to create trade wars with Europe, China, South Africa, Brazil, Canada, Mexico, you see people rushing to the dollar partly for protection against the potential negative economic consequences of the trade war, both in terms of real economic activity and the potential that it could really hit the stock market in the United States and elsewhere. That said, we think that most of the trade war inspired gold interest, our dollar interest, is behind us now. So, I'm not sure that the dollar has too much more on the upside before we see it peaking out and maybe moving back down a little bit.
Mike Maroney: So, in essence then, what we're looking at is... One, we're in the summer doldrums, and Two, the dollar has maybe hit it's high and could be bouncing in between this $94 and $95.5 area and maybe if we're fortunate enough we could see another pullback, which could potentially give investors an opportunity to position themselves in silver below $16 or potentially in gold below $1,250. But as far as your mid-range or longer term views on precious metals is concerned, you're still bullish as far as the last quarter of 2018 and the beginning of 2019, am I correct in that assumption?
Jeffrey Christian: Absolutely! I mean, you know, if you look at gold at $1,264 as we're taping this... yeah, it is possible that you could see the gold price $20 lower at some point over the next few weeks and it'd be a really tremendous buying opportunity, but I think that even if you bought today at $1,264 by the end of the year and into 2019 and beyond you'll be making money on your gold position and you'll be happy to be in there. The same is true with silver. You can wait to see if we come back and test $16 and maybe move back down to $15.80, $16 range and that would be an absolutely wonderful period... place we think to get into the market, but from a longer-term investment perspective even $16, $17, $16.15, $16.20, where we're seeing the price today probably is an attractive level to buy silver.
Mike Maroney: Now, a lot of people were talking about gold's key resistance level being right around that $1,350, $1,370 area and obviously, silver hasn't been able to really get above that $17.50, $17.80 price zone, but you do see the potential for both of these metals possibly testing those ranges again in the near term, in the next three to six months, and maybe even breaking above those price levels?
Jeffrey Christian: It might take for than three to six months, but we do think that you will see the prices above those levels. I think that when the time comes and silver has risen to test $17.50 and gold has risen to test $1,350, I think that the prices will probably break through them very easily, because the economic and financial, and political environment will probably be much worse than it is today and investors will be much more eager to have exposure to gold and silver as a safe haven in a portfolio diversifier.
Mike Maroney: So, the ironic situation that currently exists is... the U.S. is creating an environment where we have a trade war, but currently, we've actually seen investors flock towards the dollar, but that shift probably... excuse me... we shift back to a more safe-haven policy in gold and silver in the fourth quarter of 2018 as investors realize that the safety in the dollar isn't the right place to be?
Jeffrey Christian: Yeah, the value of the dollar is liquidity in the world. It is far more liquid than any other currency and most other assets and that's why you're seeing the dollar’s strength right now, but the reality is that these trade wars and other policies that we're pursuing probably more negative for the U.S. economy and the U.S. business in the long-run than they are for the rest of the world. So, that beyond that initial impulse to rush to the dollar when you see these things emerging... beyond that initial impulse, we think the dollar comes back off as investors take to rebalance their portfolio on a more global basis.
Mike Maroney: Well, they say that the trick to making money in any market is buy low and sell high. So, this environment right now has both gold and silver look to be forming a very solid base. In your eyes, looks to be a great long-term buying opportunity, correct?
Jeffrey Christian: Bernard Baruch was asked how he made his money and he said, "I buy straw hats in September and sell them in May," and I think that gold is probably going to be like that. I think over the next couple months, people aren't going to be buying gold, because it's summertime and there's seasonal weakness and they’re not sure where it all shakes out. As the Summer gives way to the Autumn, we move toward the election period and we have various other political issues there, I think you're going to see a topping out in the economy and increased concern about potential recession in the United States and that that's going to hurt the dollar and it's going to stimulate or rejuvenate investor interest in gold and silver. And let me just say this, if you look at Central Banks who are a type of investors in gold. Central Banks in the first four or five months of this year bought $4.4 million ounces of gold and sold about 400,000 ounces of gold. In other words, Central Banks as a Group bought 11 times more gold than they sold in the first half of this year. They see the value of gold.
Mike Maroney: So, obviously, if the individuals that control the Central Banks that control the world's money supply, they're buying precious metals, they seem to understand what sits out on the horizon. So, I would look at this and say it's probably not a good time to wait to buy. It's probably a good time to buy and wait.
Jeffrey Christian It really depends on who you are, but yeah, we always advise our clients don't try to get the last 10% on the downside or the last 10% on the upside. As I said earlier, I think $1,264 will look like a good price to have bought in a year from now or even six months from now. If you wait, if you have the stamina and courage to wait, you might even be able to pick it up lower. So much the better for you. What we tell a lot of our clients is to average in. So, if you're wanting to buy gold today, but you think that the price might move lower over the next few weeks, buy some today and look to buy more either if the price starts to fall, or if the price stays the same, or if the price moves up. So, if you're looking for a given position, put half of it in place at today's price and then wait to put the other half in until you see some motion in the gold price.
Mike Maroney: Okay, well, fantastic Jeff. Well, let's see how these summer weeks go. We'll be talking again next month as far as our video series, "Diversify with Gold & Silver." Great talking with you today, Jeff, and we'll talk again in August.
Jeffrey Christian It's a pleasure. I'll be here or somewhere and I'll talk to you in August.
Mike Maroney: Have a great day and enjoy your Summer!