Silver Demand and Shortages Defined | A Focus on Platinum
Sean Brazney: Hello! My name is Sean Brazney, Sales Director for Monex Deposit Company. I’m here with Jeffrey Christian, Founder and Managing Partner of CPM Group and one of the many research analysts at CPM Group. Thank you very much again for your time today Jeffrey.
Jeffrey Christian: It’s always a pleasure to be with you Sean and with Monex.
Sean Brazney: I want to start off talking about silver. Silver seems like we’ve been in somewhat of a sideways range for the good part of a year, trading between $24 and $28 an ounce with some brief moments above and below that range, but really have been kind of locked into this range for a while. As we got into February of this year, there was a lot of news that was starting to hit regarding silver and the Reddit crowd talking about short positions in silver and since then we’ve seen some articles come out about shortages in the silver market. Even though we’ve been in this sideways range of these silver shortages, I’ve actually even seen an uptick in investor demand for investors that want to take home 1,000-ounce silver bars, which is somewhat of a new trend that I’ve seen. I saw a video you did on June 2nd. I think that is wonderful and really details a lot of this information regarding the shortages. Would you be willing to share some of that with us and our viewers?
Jeffrey Christian: In terms of overall silver in the world, there really isn’t a shortage. There’s a lot of misunderstanding about the data that is out there and there’s a lot of speculation about what’s out there, but if you want 1,000-ounce bars, there are plenty of them around. They may not be exactly where you want. In terms of the shortages that we’ve seen, what we’ve seen are shortages of investor sized 100-ounce bars, kilo bars, U.S. made eagles, Canadian maple leafs, and rounds or medallions that are produced by refineries. There are several reasons why those things are in short supply. One is that the demand for those products have risen sharply. Second one is that a lot of the private refineries and national mints that produce them have had issues due to the lockdown and cutbacks on their schedules and such that they weren’t able to meet it, but there’s another one which is that, you know, from 2015 to early 2019, the demand for these silver products had fallen off something like 75%. So, you had very low demand compared to where you had been and a lot of those refineries cutback on their staffing and they cut back on their ability to produce those bars, because it wasn’t there. You even had some companies getting out of that kind of business at that time. Then the national mints, the Royal Canadian mint and the U.S. Mint, they tried to produce to meet demand and there’s a lag to produce, to buy the silver, have it converted into blanks, and then have the blanks stamped, and have them ready to be marketed. It’s very difficult to say, you know, people are going to be buying 40 million ounces of silver coins this year or no their going to be buying 180 million ounces. We went from an enormous of silver being bought in coins to a very low level, and the refineries and mints geared down to that lower level, and then all of a sudden demand more than doubled last year, and they had to ramp up production to meet that demand just as the lockdown and the pandemic hit. Now, there’ve also had been some technical problems with blank manufacturers moving their facilities and having some production interruptions and capacity interruptions, because of those sorts of mechanical issues, and all of that stuff is combined to cause shortages in the smaller bars, but if you want a 1,000-ounce bar you can find them. There’s been a lot of people saying that you can’t find them, but we’re familiar with Monex and we’re familiar with some of our other clients and companies in London, and Shanghai, and Singapore, and New York, and there’s plenty of 1,000-ounce bars around to meet demand. The problem is getting it from 1,000 ounce to those smaller sizes.
Sean Brazney: Shifting a little bit of our focus over to gold. You and I over a few of our last sessions have talked about the 10-year treasury note and the rate and anybody investing in gold should really be keeping an eye of that 10-year rate. We saw it explode all the way up to 1.76, and it seems to be in a down trend now after that 1.76 high, we saw a double bottom on gold, down around that $1,674 price, and it has been a beautiful uptrend since then. The trend in that rate looks like it’s still going down and looks like there’s some great potential for gold to sustain a rally over $1,900 an ounce. Are you seeing some of the same thing?
Jeffrey Christian: We’re seeing exactly the same thing. First off, the lower rates…we had a spike up in the first quarter of the year, really January and February, in treasury rates and that put a scare into financial markets, including gold and silver, but that’s not unusual after you’ve had an extended period of declining rates to see that first bounce be relatively high, and now it’s backed off from that. I’m not sure that rates are going back to 1% or lower for the 10-year bond, but I do think that what you’ve got is a better perspective on the part of financial markets about interest rates—nominal rates are going to stay low, real rates are going to stay negative, and that’s good for gold, because the cost of putting your money into gold instead of into treasuries is negative. You’re actually benefitting by having a tangible asset, rather than having something that is losing value on an inflation adjustment base.
Sean Brazney: Now, on the flip side of that rate, if it decides to turn around and head back to the upside of, it looks like if it gets up and over that 1.66 level that maybe that gives us some better opportunities to accumulate gold, maybe mid $1,800… mid to low $1,800’s, is that a bottom target that might look like a pretty good chance to accumulate?
Jeffrey Christian: Our view is that we would not be surprised to see $1,800 or $1,820. I think the probability of that diminishes over time, but you still have the potential to have some weakness in gold prices. You know… a week ago when the prices were around $1,890-$1,900, we had said we thought it could get back down to $1,875, and it touched $1,871 today. I do think there’s some scope for weakness, but on the upside, you mentioned $1,900. We wouldn’t be surprised to see $1,900 broken again and actually we wouldn’t be surprised to see $1,920 broken in the period of July into early August. You have a very active August COMEX contract and in the last two years you’ve seen gold prices rise strongly in July as you had to roll out of the August contract into October and December COMEX futures, and we wouldn’t be surprised to see that same kind of upward move in July into early August as this year’s roll from the August contract into October and December occurs. I think the market is geared up so that $1,920 or even higher, maybe as high as $1,960 is possible over the next two and half to three months.
Sean Brazney: Thank you for those dates and time frames. I think it’s great for investors to have something to look at over the horizon and be able to strategize with that kind of stuff. When it comes to inflation, we talked a little bit before, even filming about the topic for inflation, and I know it’s been out there in the news for a while and sometimes it could be confusing or even somewhat of a yawner, but it just seems to be that the smart money out there is really talking about inflation being transitory, that it is not something necessary to worry about on the upside. But when you look at the markets and some of the chatter out there on the web, it seems like or feels like the market’s trying to price in some of that inflation. Again, I know we talked about it in the past, but can you give us your thoughts on really the state of inflation and what we’re looking at here over the short-term?
Jeffrey Christian: Our view is in line with that of the treasury and the Fed and other mainstream economists that what we are seeing is transitory inflation that might last really through the rest of this year or probably not much further beyond that. If you look at today’s CPI numbers, this was taped on the 10th of June, if you look at it, what you saw were oil and natural gas accounted for 25% of the inflation in May. You saw things like air transportation, food consumed outside of the home, and apparel, and used cars, as strong pockets of inflationary pressures and that reflects coming out of the lockdown. People are buying clothing, because they’re going back out to work or they’re going back out into public and they haven’t necessarily been buying clothes. Used cars have been strong inflationary pressure factor all year, because of people moving to the burbs from the cities and needing one car, or two cars, or wanting three cars for their new homes and things like that. Air transportation, the airlines are trying to make up for lost time, and the restaurants are increasing their prices, because they have to lure workers back into the restaurant. So, these are all things that are sort of temporary bounces coming out of the lockdown. We think they dissipate over time and then inflation is probably not all that problematic. We think that other financial issues, low interest rates, a very top-heavy stock market, the prospect of some financial losses either in stocks or in cryptocurrencies, I think, there are a lot of other factors that could cause investors to say, “I’m worried enough to own gold.” I think inflation is relatively low on our list of priorities as to reasons to buy gold this week.
Sean Brazney: I would like to kind of close out and finish with platinum. Again, you and I did some great videos when platinum was trading between approximately $800 and $1,000, built a great base down there. It really looked like one of the best value trades for quite a while. You turned out to be correct again when it broke above that $1,000, went all the way up to $1,350. We seem to be in a little bit of a correction again, some back and fill. Getting closer to $1,100 again and platinum looks like the value trade all over again—anywhere between this $1,000 and $1,100. What do you think about platinum down here at these levels?
Jeffrey Christian: I would be an eager buyer of platinum below $1,100 from the perspective of being either a short-term or intermediate-term investor, from a short-term trader to say one to three years. I think anything below $1,100 is probably a good price to buy platinum, because the tide is turning, demand is rising, it’s been a little bit mitigated by the semiconductor chip in the auto industry, which has reduced the production of new cars, and thus reduced the demand for platinum, palladium, and rhodium in auto catalysts, but that’s a temporary factor too. Demand is rising, supply had risen, because it had some problems in 2020, but that’s in the price already. I think that the platinum market pretty much is at its low or just above its low right now, and from a perspective of the next one to three years, I’d be a buyer at $1,100 or anything below that.
Sean Brazney: Thank you for that information Jeffrey, and to remind our viewers, we’re here with you, of course, because you are the author. CPM Group puts together our Better Future with Precious Metals. A lot of the things that we’re talking about, of course, can be found in these reports, as well as, many of the other great reports that CPM Group puts out. So, as a reminder to our viewers, please call Monex today. Talk to our account representatives and ask for the current Better Futures with Precious Metals as well as our CPM Group reports.