Key Factors Causing Precious Metals Prices To Decline
Sean Brazney: Hello! My name is Sean Brazney, Sales Director for Monex Deposit Company. I’m here today with Jeffrey Christian. He is Managing Member and Founder of CPM Group and one of the many analysts there at CPM Group. Thank you for being with us today Jeffrey.
Jeffrey Christian: It’s always a pleasure to meet with Monex.
Sean Brazney: Of course, we’re talking about our A Better Future With Precious Metals Report that CPM Group is the author of. You’re kind of getting into some activity that we’ve seen in the market lately on August 9th. We saw gold take a dive to the downside, somewhat significantly in the overnight almost by $100 per ounce. It has recovered quite a bit of that move and the pullback has also affected silver back down into that $22, $20s, area on August 9th with a little bit of a bounce out of silver since then. Now, one of the things I’ve been hearing from investors is the IMF was planning on selling some gold to help out Africa. Jeffrey, you had some great intel on that rumor that might help clear that up a little bit if you could share that with us.
Jeffrey Christian: President Macron of France suggested, I guess, back initially in May and then more forcefully in June around the time of the G7 Conference, he was talking about the idea of providing debt relief for African governments and this is something that’s gone on for decades. There’s a whole round of debt relief for highly indebted developing countries in the 1990’s and, you know, 30 years later, they’re still having a lot of troubles. So, he was suggesting that they increase the allocation of special drawing rights to African countries within the IMF to give them debt relief and greater borrowing power and specifically, he was talking about a $100 million dollar deal where the IMF could sell some of the gold that it owns in order to raise money to help these countries. Now, that could send a little bit of a negative shock to the market, because they hear, “Oh, the French government is talking about the IMF selling gold”, but if you stop and take a breather, a $100 million dollars is about 56,000 ounces, it’s less than 2 tons of gold, it’s not a lot of gold. To put it in further context, earlier this week, Palantir, which is a company that’s a start-up company that has no profits yet, in the internet space. Palantir took $50 million of its treasury and bought gold. It made a big stink in the market and there were any number of permabulls who say, “Hey look, here’s a private corporation putting part of its treasury into gold.” Well, $50 million dollars is what 27,000 ounces, it’s less than a ton of gold. It’s important, but the reality is that companies and governments buy and sell gold all of the time. So, $100 million dollars, 56,000 ounces of gold sales from the IMF, wouldn’t be a big deal in the gold market, and because they would be going through the IMF it would probably take years and years and years of discussion to reach an agreement to do it. The last time the IMF sold gold was probably about a decade ago and it was after probably a decade’s worth of discussions. I think that the news that the President of France suggest the IMF sells golds can spook the market and maybe it was part of the amalgam of factors that caused the gold price to be weak in June, July, and August, but I don’t think it’s particularly significant to the actual price of gold.
Sean Brazney: Also, the price got down to that $1,670s area again. It looks like the third time it’s been able to test down there. Really some of the lowest prices we’ve seen in gold since we’ve started this uptrend. With that being the low that the market tested, is that going to be somewhat of a floor or do you still see us having buying opportunities somewhere down a little closer to $1,700 or just below?
Jeffrey Christian: It absolutely is the floor. As you know and your clients know, we were saying that the gold price could drop down and test that $1,680 floor. It tested twice, once in Mid-March and then once at the end of March, and we should point out in Mid-March it was there for six days and the end of March it was there for two days. So, we have been saying that we thought that the gold price could sell off into August once we got beyond the first week of August, and that it could go down and test at $1,680. We were a little surprised it happened in the sixth trading day of August, but we weren’t surprised that it happened. With that said, I wouldn’t be surprised if it dropped down and tests $1,680 again, possibly around the 26th or 28th of August, during the Kansas City Feds Jackson Hole Conference, because there will be a lot of talk about the strength of the economy and the probability that the Fed undertakes some tapering of its monetary accommodation and that could spook the gold market again and cause the prices to drop down. But we think that, and what we’ve been telling our clients and your clients, is $1,680 or $1,700 in August is a great buying opportunity as a long-term accumulator of gold. If the price doesn’t sell off and you wind up buying it today at $1,780, that’s still a good price at which to buy gold from a long-term perspective, because on a longer-term basis it looks like gold prices probably will be rising from here for the next several years at least.
Sean Brazney: Of course, the Palantir organization is buying gold for protection let’s say and to put some of their reserves into gold, it makes sense for the average investor to still consider this of course as well. That pullback with silver coming back… we were in a $24 - $28 range for quite a while. The yearly range going back to July of last year, really is the $22 - $28 range, so we seem to be testing the bottom part of that zone. Do you think this is going to be somewhat of a low now and we should get aggressive in accumulating down here?
Jeffrey Christian: Well, we had thought that the silver price could drop down to around $22 in August. It got below $23 on that spike down on the 9th of August, it’s back up. It’s testing $23 as we speak today and again we wouldn’t be surprised to see another spike down in the last two weeks of August, possibly as low as $22 an ounce, but again, we still think that this is a good price level for longer-term accumulation.
Sean Brazney: It’s been a while since we could get into the $22s. I have been talking to investors the same that $22 or lower you really have to pay attention to silver. For platinum and palladium, you have been spot on… I’m thinking every time we’ve talked about platinum and palladium, you talked about the softness in palladium and expected that to happen, but more focused on platinum right now, because of where it’s at, it’s under $1,000 per ounce, I think, we tested $956 at the low and hanging around the $970s right now. I have been a big proponent of platinum under $1,000. Can you give us some information that still shows under $1,000 is the place to buy?
Jeffrey Christian: Our view is that under $1,000 is a good place to buy. We were accurate in many ways with platinum, but one of the things we got wrong was we thought the price would come down and find the support around $1,035, maybe $1,000 and over the last few weeks it actually has broken below that. That just makes us more bullish on platinum, because the price is in fact below $1,000. You’re looking at seasonal weakness in fabrication demand. You’re looking at seasonal weakness at investment demand. Longer-term, you’re seeing investors showing greater interest in platinum both in terms of ETFs as well as coins. So, our expectation is that the platinum price rises above $1,000 probably in September, maybe a little later, probably though in September and that it starts moving back up into that $1,000 - $1,200 range, or the $1,100 - $1,200 range that we’ve seen for most of this year. This year, for the remainder of this year, and into next year, and then we think that as time goes forward, you’ll probably see platinum prices rise further, because you are seeing a shift away from palladium toward more platinum in autos, and you’re also seeing a shift away from palladium to platinum on the part of investors.
Sean Brazney: I also saw your seasonal chart for the PGMs and it looks like coming into October, November is a seasonal strength in the market. These lows might be giving investors an incredible opportunity before that strength comes into the market.
Jeffrey Christian: Yeah, there’s seasonal strength toward the end of the year, it tends to be reflecting several things. One is increased fabrication demand from the auto industry. Another one is inventory building. A lot of fabricators will rebuild their inventories that they let run down, toward the end of the year they do that for tax purposes and also just to be ready for the following year. Then a lot of investors take the end of the year to, sort of, revise their portfolios and say what should I be doing. So, those three factors tend to coincide, November, December, and you tend to see some strength in platinum and palladium at that time.
Sean Brazney: I’m going to put a little teaser in here for our viewers that I know we’re working with you on a platinum report coming out here in the near future where we can get into a whole lot more details. I also want to remind our viewers that we’re having a hard time sourcing and finding 1-ounce bars for platinum. Coins have been very hard to find. We still have the bullion bars available of course, but there is a little bit of a shortage, and we’ve seen some premium coming in of the physical metal going all the way out into January. So, these lows are something important to keep an eye on. Also, to remind our viewers that CPM Group was telling us about the potential for some of these lows and that they would happen coming into August. So, don’t forget the CPM Group reports and their special advisory reports. When you have a moment, please call Monex. Talk to our account representatives and get your A Better Future With Precious Metals.