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Mine Supply, Rates, and More Insights From CPM Group

Jeffrey Christian
August 18, 2020
Video Transcript

Sean Brazney: Hello. My name is Sean Brazney, Sales Director for Monex Deposit Company. I am here with Jeffrey Christian, Managing Director of CPM Group Commodity Research Firm. Thank you very much for being with us today, Jeffrey.

Jeffrey Christian: It’s always a pleasure.

Sean Brazney: Of course, we want to start off with volatility. It has come roaring back here over the last few months. When I talked to investors on the phone, I hear a lot about them talking about the stimulus package and the money is being injected into the economy in somewhat simplifying some of the volatility that we’ve seen based on that. Was hoping you might have some deeper data on that.

Jeffrey Christian: I think that the monetary and fiscal stimulus that we’ve seen, not only from the U.S. government, but from governments around the world. It’s definitely contributed to the volatility in gold and silver prices, but there is a lot more there. I think the basic underlying issue is a tremendous amount of political and economic uncertainty and a subset of that is all of this money that has been pumped into the global economy. Much of which is actually sitting in the banks and has not really been utilized as fully as a lot of people would have thought by now. I think the money supply has definitely helped the volatility, but it’s not the prime cause. In addition to that, gold and silver are very small markets compared to stocks and bonds and currencies. So, the increased liquidity has a bigger effect on the volatility.

Sean Brazney: Are we seeing some real supply demand fundamentals kick in, in regards to mine supply? I saw your report a little while back talking about Latin America and Mexico picking up the slack for Chile and Peru at the time. Are we still seeing some disruptions in mine supply with what’s going on with Corona?

Jeffrey Christian: We’re seeing some disruptions, but fewer. I think the biggest disruptions were really January through March in China and March through April into May maybe in the rest of the world. Latin American countries cut back, as did some African countries, South Africa basically shut down for a while. That has seemingly largely dissipated and a lot of those mines are now coming back into operation. Some of them at less than full capacity, but you’re starting to see increase supply. On the demand side, you do have investment demand as a big fundamental.

Sean Brazney: This volatility we’ve seen, of course, the rapid rise in prices. You do think that’s strong investment demand and not so much paper driven?

Jeffrey Christian: It’s a combination of it. Part of it is paper driven and I think the paper… trading you know, the futures, options, and forwards, and the leveraged ETFs as opposed to the ETFs that buy physical metal. I think that those things you’re seeing a lot of generalist investors coming in out of those markets and that’s probably contribuiting a lot to the volatility that you’re seeing right now. The physical demand for gold and silver coins, bars, large bars, small bars, that probably has far less to do with the volatility that we’re seeing in prices.

Sean Brazney: When it comes to the long-term investors in gold, I talked to many of them and they like to look at the 10-year note and the yield in that 10-year note. I think last Tuesday, we saw the10-year dip to what they say was a negative 1.1% real rate. There’s also a talk about real vs. nominal. Can you educate our viewers and listeners in regards to that real rate vs. nominal rate?

Jeffrey Christian: Right, well the nominal rate is the headline rate. So, treasury is right now, 10-year notes are about .67% return interest rate on a 10-year note in nominal terms, but then if you look at that and you say well inflation is 1.8%, then you realize that you have a negative 1.1% inflation adjusted or real interest rate and that’s what a lot of people look at. Because if you’re saying to yourself, okay first off, 10-year T-note, do I want to tie myself up for 10-years in a Treasure note. Well .67% is not that great of a rate for 10-years, but then when you say wait a second, with inflation it’s actually negative 1.1% , I’m losing more than a percentage a year in the value of that asset if I put it in the treasuries. So, that’s a really big deal. People simply say, “No, I’m not going to do that, it reduces the opportunity cost of having your wealth in gold and silver.”

Sean Brazney: Thank you for that Jeffrey. Of course, you’re the author of our, “New Decade for Precious Metals Investing,” as well as, your firm has put together our, CPM Group Reports on Gold, Silver, Platinum and Palladium with some great commodity research.

Call Monex today! Talk to an account representative and ask them for the “New Decade for Precious Metals Investing Report, as well as, the CPM Group Reports on Gold, Silver, Platinum and Palladium.

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