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What Could the Coming Months Have in Store For Investors?

Jeffrey Christian
June 19, 2020
Video Transcript

Jeffrey Christian: Hello. This is Jeffrey Christian from CPM Group, coming to you on behalf of Monex Precious Metals. It’s the middle of June and we’re talking about the outlook for gold, silver, and platinum group metals. Overall, there still is an enormous amount of uncertainty over the course of the global and U.S. economics, recession, political situation moving toward the election and what all that means to the financial markets: stocks, bonds, currencies, as well as gold and other precious metals. There are people who seem to think that there’s greater certainty, but the wave of volatility and uncertainty is probably not over and we’ll probably see continued degrees of uncertainty as to where things are going and increased market volatility as a result of that, over the next six months, the rest of the year. There could be a period of time when the markets settle down a little bit, in July and August, that’s not uncommon, but these are not common times so it’s hard to say. In 2007, August was an extremely volatile market going toward the great recession and global financial crisis that really emerged at the end of 2007, but with that said, there could be a period of quiet times in these markets during the summer months. Beyond that, we expect the uncertainty to increase and the volatility to increase. September and October will be leading up to the Presidential election and the Congressional elections in the United States. Brexit continues to be unresolved in Europe and there are big questions about the rest of Europe in a post COVID-19 situation. Russia remains a problem. The Russian Saudi oil price war isn’t over. The first battle is over. It probably will come back and there are any other number of problems that could resurface. So, beyond any lull in July and August, CPM Group expects greater uncertainty politically, economically, financially, leading to greater volatility in precious metals and financial markets.

We’ve seen a strange situation that a lot of people have asked us about and that is that the relationship of money supply, M1 to M2 to MZM, the velocity of money, are not behaving in the way they have in past recessions. People want to know why that is. The answer is simple. This recession is like no other before, at least prior to… since World War II. We have a recession that was brought about by governments around the world locking down their economies, their societies, their nations in response to the gathering pandemic. In the past recessions, have often occurred because of tight money supply, either because the economy is expanding too high or the monetary authorities have tightened too much. This time there’s plenty of money out there and as a result you’re seeing a much bigger growth in narrow money supply than you are in broad money. That’s because the recession isn’t caused by tight money, the recession was caused by government actions and there are any number of people who are not buying things, they’re not building things, they’re not acquiring things, they’re not investing in capital and as a result the demand for money is far less than it would typically be at this stage in a recession. So, the money supply is coming in on a M1 basis, but in terms of M2 and M3, it’s not being redeployed. We’ve seen historically low velocity of money in M2 and M3, never before has the velocity, a turnover of the money, been so slow. In M1, the velocity is as low as it has been since 1972 and its roughly half of what it was a decade ago. So, we’re seeing an economy that is well supplied with money, thanks to the Fed and other monetary authorities, but it’s not being redistributed and used because investors, and consumers, and businesses, are not out there spending money the way they used to. The velocity will pick up at some point, as the economies re-emerge from the lockdown, but we don’t expect it to go back to where it was. If you look at the charts of the velocity of money, when you’re looking at M1, M2, or MZM, you’ll see that the velocity has really been falling since the great recession in a way that is problematic for monetary authorities and in a way that suggests very forcefully that the monetary, and economic, and financial systems, that have existed since 2008-2011 are radically different from everything that came between WWWII -2008. That confuses people. It leads to bad analysis, because people look at the historical relationships and they try to figure out what’s going on, and it’s just not the same. That’s good for gold, it’s good for silver, it’s good for people seeking capital preservation in gold and silver, and it’s also good for people seeking capital appreciation. So, our expectation is that the overall trends in gold and silver prices are higher. It may not rise sharply in the near term. They might actually weaken over the next two and a half months and we would take any weakness to be an opportunity to add to our long-term physical positions in gold and silver, simply because you probably want to diversify both the denominator of your wealth and the nature of your wealth. I’ll talk to you next month.

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