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Jeffrey Christian Talks Inflation and Other Relevant Investment Topics

September 18, 2020
Video Transcript

Sean Brazney: Hello. My name is Sean Brazney, Sales Director for Monex Deposit Company. I am here today with Jeffrey Christian. He is a Managing Partner and Founder of CPM Group. He is also the author of, A New Decade for Precious Metals Investing report. Thank you very much for being with us today, Jeffrey.

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

Sean Brazney: This report I know is fresh off the press and eager to get this in our viewers hands. I want to remind our viewers it’s only about 15 pages, it’s got big lettering, wonderful graphics, not a lot of time to get through. So, keep that in mind in regards to the report. Jeffrey, right off the bat in this report, you make a claim of buy the dips. We’ve seen silver test down near that $26 level a couple of times and bounce right back up towards $28. We’ve also seen gold try to come down and challenge the $1,900 level. It just won’t give us the real close under that $1,921 or $1,934 area before bouncing right back to the $1,970’s, $1,980’s all over again. We seem to be working through a little sideways channel here, but looks like we have very strong investor demand now. Is that what you’re seeing?

Jeffrey Christian: Well, we’re seeing a number of things, but one of the things we’re seeing is very strong investor demand and not just in the paper assets the way we saw it a year ago, but also a lot of investor demand for physical metal: gold, silver, platinum, and even you’re not seeing a lot of buying for palladium, but you’re not seeing a lot of selling.

Sean Brazney: Now, with this investor demand, I know we had talked about it in the past, Central Bank demand, we were down to $1,2000, $1,300 gold. You talked about Central Bank demand picking up the demand there and now that we’re up here near the highs this is more investor demand and we’ll probably see Central Bank demands start to diminish a little bit up here, would you say?

Jeffrey Christian: It already has diminished. I mean, we’ve always made the point, investment demand, private sector investment demand, is the key driver for gold and silver prices and Central Bank demand is a secondary driver for prices, but Central Banks are much more price sensitive than private sector investors are. So, what you see is when the price dips down, usually it’s because investors are pulling back from buying quite as much. You saw this in 2017, 2018, 2019 and when the price dips down the Central Banks will step up their purchases, and then when the investors come back and start bidding the price up, which has been case over the last six or eight months here in 2020, the Central Banks will pull back and we’ve definitely seen that happening this year.

Sean Brazney: Now, with gold strength, we look to silver as playing some catch up on the prices. Of course, gold took off to the upside and it took a little while for silver to catch fire and catch up, but now that it has we seem to be holding onto this $26 level in silver, back in September of 2011 til about March of 2013, we traded between a $26 and $35 number in silver before finally breaking down below that $26. Do you think we have some potential to get back up and over $28 and make another run over $30?

Jeffrey Christian: Yes. We’re looking for $32 to $35 dollars over the next three or four months through the rest of this year. Yeah, so we’re looking for silver prices to rise $26 has been a solid base and it may well hold for the next few months, because of the political and economic uncertainties we’re facing.

Sean Brazney: Yeah, we don’t normally get you right before a Fed meeting. You know, we’ve got the Fed policy meeting coming out tomorrow. Last time the Fed came out, they made a statement that they’re going to let inflation run, potentially passed its target. I think it’s had a 2% target for quite a long time. Back in 2008, we saw the financial crisis and the Fed balance sheet balloon up to about 4.5 trillion and after two years of quantitative tightening, which actually you were very instrumental in helping us understand it. During that two years of quantitative tightening, we only get the Fed balance sheet down aroungd4 trillion, only to see this pandemic balloon that balance sheet higher again. During that whole time, we weren’t really able to see inflation. What does it mean they’re going to let it run? How does the Fed have the ability to let inflation run?

Jeffrey Christian: I think it’s something of a bad joke. I mean, with all due respect and I do like the Fed and a lot of the things that it does, I think it does well, but the idea of the Fed targeting 2% inflation rates over time is to me sort of off-base and nonsensical and the idea that they would let inflation get over 2% is even more humorous in my mind, because they really can’t control it. I mean, if you look at what’s happened really over the last 40 years between money supply growth, Fed policy on the one hand and inflation on the other hand, what we’ve seen is that inflation is responding much more to the real economic trends in supply and demands of goods and services on a global and a national basis and much less on money supply. So, the Fed can say… I think what they’re saying is not that they’ll let it run, but they would tolerate inflation over 2%, but if you look at the real economy and the economic constraints that we have even with some strong industrial production and recovery over the last three months, not so much last month, but prior to that in June or July, you’re still 8% below than you were before the pandemic and lockdown started. I think what the Fed is saying is they’d love to see higher inflation and they would tolerate more than 2%, but if you look at the situation in the real economy, the real economy does not have a lot of inflationary pressures outside of the stock market, which is not the real economy— it’s a side show and the bond market. You know, the inflation is showing up in stocks and bonds. In the real economic world of supply and demand of goods and services that you and I buy, and eat, and consume, and use, there are no inflationary pressures to speak of right now. There are a lot of deflationary pressures and the Feds kind of misstating it’s hope that you could see some inflationary pressures.

Sean Brazney: I know you’ve been instrumental in helping us understand that it really doesn’t take high inflation for gold to do well, just moderate inflation will do it, right?

Jeffrey Christian: Well, it’s really… gold rises very sharply if you see inflation over 7%, historically in the United States, but it doesn’t take that. What you can see, for example in 1982, is inflation expectations can pick up and investors will start pivoting into gold and silver in the expectation of higher inflation, even if the inflation doesn’t occur. We started to see that in 1982, there was a big increase 14.8% growth in money, M1 money supply, and people bought gold and drove the price from $286 to $500 in six months in the expectation that that would be hyperinflationary. In fact, it wasn’t inflationary at all and inflation fell sharply late 1982 and into 1983 and really hasn’t ever risen back to where it was prior to that. So, gold does really well in periods of high inflation. Gold does well in periods of deflation and when you have this gnawing inflation of 1% or 2% gold does well especially when investors think that inflation is going to pick up regardless of whether it actually does.

Sean Brazney: Well, Jeffrey thank you very much for your time and your input. The information coming from A New Decade for Precious Metals Investing is out and new. You also mentioned that there have been some drastic changes in our world over the last several months and you have made some revisions to the CPM Statistics and some of those revisions are also in this report. So, please call Monex today, talk to one of our account representatives and ask for A New Decade for Precious Metals Investing report.

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