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Will investors take advantage of the weakness in seasonal demand?

Sean Brazney & Jeffery Christian
May 12, 2021
Video Transcript

Sean Brazney: Hello! My name is Sean Brazney, Sales Director for Monex Deposit Company. I’m here today with Jeffrey Christian, Managing Partner and Founder of CPM Group and one of the many research analysts they have over at CPM Group. Thank you for being with us today Jeffrey.

Jeffrey Christian: It’s good to be with you.

Sean Brazney: We have our May report for, “A Better Future With Precious Metals,” coming out. In your report, you mention, kind of right away, that some of the reason behind this move up in the commodities prices was based on the 10-year note declining from its recent peak. I just want to remind our viewers, that in the second and third quarter of last year, you and I were talking on a video, I think, we were trending between .4% and .7% on the 10-year and we talked about its potential for a move to the upside. We were trading in gold around $1,800-$1,900 per ounce. We were hoping that it would finally bring in a lower low for gold on that increase in the rates, which actually happened. We got all the way down to that $1,674 a couple times and at the March lows it had been trending on the way up since then. Would love your take on where you see the 10-year rates going from here.

Jeffrey Christian: Well, for the next 5-6 months, we think that rates kind of move sideways in the range that we’ve seen since early to mid-March. Interest rates made a big move after the second-third quarters of last year and then they sort of broke above 1.3% for the 10-year rate in early March. Our expectation is they probably stay above 1.5% -1.56% for the next 5 to 6 months, at least, but they could rise back up to 1.75%, which is where they were at the peak. Probably, even go to 1.8%. We don’t think that a move to 2% or higher is likely in the next two quarters. Longer-term, yea, it’s possible, but we think that for now, interest rates will remain relatively moderate in the recent range.

Sean Brazney: We’re hearing a lot of talk about inflation, You and I talk about inflation, and I rely heavily on you to get that information to our viewers and our readers, but in this report, you make mention of reflation. We’ve heard in the news about the reflation trade. Would you give us a… maybe a quick definition of the reflation trade and where we might see that in the market?

Jeffrey Christian: I guess people talk about reflation, because they don’t want to talk about inflation, because inflation carries connotation of higher prices. So, reflation is basically when the monetary authorities, the treasuries and the Fed in the United States, say, “Look, we have very low inflation, lower inflation than we like, they like…you know… I don’t necessarily agree with the treasury and the Fed that we should have inflation around 2%, but that’s their policy, is to have inflation around 2%. It has been way below that for an extended period of time, probably because of the lockdown, the economic recession, and the pandemic. So, the idea of a reflationary policy is trying to get inflation back up to 2%. It’s not pushing for higher inflation of 4% or 7% or something like that. The reflation trade suggests that if you’re seeing prices rise as the monetary authorities succeed in doing that, assuming that they can succeed in doing that, they’ve been having a tough time getting inflation up… to rise up towards their 2% objective, that there were certain assets that will benefit like gold and silver and there are certain assets that might not benefit as well, including some sectors of the stock market.

Sean Brazney: In the report, you do get into the specifics on gold and silver. I wanted to bring up platinum and palladium. Anybody who is trading platinum and palladium or accumulating platinum and palladium, I really think this May report is something that is a must have for them. We’ve seen platinum break out to the upside and has been holding on to those gains within this uptrend. We also saw palladium break out above that $2,800 old high area and put in a new higher high. Moving forward, should we be accumulating more platinum? Do you think palladium is going to keep going?

Jeffrey Christian: We’re definitely leaning toward platinum. It’s… palladium is a tough one. I’ll take the tough one first. Palladium is a tough one, because its at record levels. It’s gone up to around $3,000 an ounce and that’s a combination of strong demand from industrial users, the auto industry primarily, but also to some extent electronics manufacturers, because palladium is used in semi-conductors, but it’s also inventory building by industrial users who are concerned about supply disruptions. We have had some supply disruptions in Russia, which are on-going right now with a couple of mines having some problems and in South Africa earlier in the year and late last year. So, there’s been some supply disruptions, industrial demand is rising, industrial users are building inventories, because of the supply disruptions and concerns about where the price is going, and investors are watching all of this and pouring in. So, the investment demand for palladium has really been a major factor pushing palladium prices higher. That makes us worried. We never want to stand in front of a runaway train or a racing train and palladium prices are a train racing higher and I wouldn’t sell at this point, but I’d be very concerned about building long-term positions or adding to long-term positions.

Platinum is a lot easier to be bullish on, because the price has been battered down for about 6 or 7 years. It’s starting to rise. There’s a shift away from palladium to platinum in auto catalysts. There are a number of other factors that are going for platinum. So, we think that platinum… we’re leaning towards platinum as an investment to stock up on right now, as opposed to palladium.

Sean Brazney: Platinum does look like we have some lower support numbers that could come into play. We can finally break down under that $1,150 area. It still looks like maybe $1,070 - $1,104, might be wonderful areas to accumulate. Are you seeing some opportunity down there potentially as well?

Jeffrey Christian: We are, I mean… seasonality, there’s weakness in platinum and palladium prices in the third quarter, partly because the auto industry traditionally would shut down, take rolling vacations, and re-tool their factories for the new model year in July and August. So, that would weaken the demand for platinum and palladium during that period of time. So, there’s some seasonal weakness that you might expect. That policy and practice has sort of gone by the wayside in the auto industry, but it’s still there to some extent. So, we wouldn’t be surprised to see gold, silver, platinum, and palladium, show some price weakness, giving you those dips that you can buy on, over the next period of time from May, now, really through August into September.

Sean Brazney: Palladium traded between that $2,200 and $2,500 range for a while before breaking out. Do you see support kind of down in that range for palladium as well?

Jeffrey Christian: I think if palladium sells off, it probably doesn’t go back to $2,200 at least initially. We do have some longer-term concerns about palladium, because there is a lot of palladium that is held in investor inventories and in other people’s inventories, but we think that the palladium prices probably supported above $2,200, well above $2,200 at this point. Right now, you know, if it comes down to $2,500 or $2,600… a) that would be a really big drop, b) that’s probably about where you’d see some bargain hunting buying coming back in.

Sean Brazney: Well, this May report is packed full with a lot of details and a lot of information. It’s really great to have it coming in, in May, as we kind of come in to that summer time frame and sometimes can be a weak investor demand, but these reports, I think, will be crucial for investors as they’re looking out over the rest of the year. Jeffrey, your information and your time is so valuable to us. We greatly appreciate you. For our viewers and our listeners, please give Monex a call, talk to an account representative and get your most current CPM reports.

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