Jeffrey Christian: Gold and Silver Prices Have Probably Bottomed

Plus comments on peak debt, the possibility of a recession and what commodities CPM Group is bullish on heading into 2016.

Many investors are concerned about the state of the global economy, but CPM Group’s Jeffrey Christian has a different perspective. While he certainly believes the global economy is facing problems, he doesn’t see them as “cataclysmic.”

That’s not the best news for precious metals like gold and silver, which tend to fare well in times of turmoil. However, that doesn’t mean all hope is lost for those metals in 2016. In fact, Christian believes prices for both gold and silver may have bottomed out. “We think that gold and silver probably have fallen pretty much as low as they will, and we’re looking for them to bounce along the bottom and then start to rise later this year,” he said.

Other key topics covered in this Vancouver Resource Investment Conference video include:

  • The possibility of a recession: “I think we will see a recession at some point — but it may well be 2018 or 2019 before we see it,” said Christian.
  • The concept of peak debt: “I don’t believe in peaks — I didn’t believe in peak oil, I don’t believe in peak gold or copper, and I don’t believe in peak debt,” Christian asserted.
  • Lack of exploration spending: Christian’s opinion is that “we are shortchanging the future.”

Watch the interview above for more insight on those topics, and to learn what commodities CPM Group is bullish on in 2016. And don’t forget to keep an eye out for more video interviews from the Vancouver Resource Investment Conference.

 

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

Related reading: 

VRIC 2016, Day 1: Notes from the Floor

VRIC 2016, Day 2: Notes from the Floor

This article was updated on February 29, 2016 to include the following interview transcript:

INN: I’m Charlotte McLeod with the Investing News Network, and here today with me at VRIC is Jeffrey Christian, managing director at CPM Group. Thank you for joining me today.

JC: It’s good to be here.

INN: Your presentation today was on the global economy, and its title suggests that you don’t think the situation is as dire as many other people seem to. What’s the source of your optimism?

JC: I wouldn’t necessarily say it’s optimism — I’m somewhere between an optimist and a pessimist. I think there are a lot of problems that the world economy is facing, but I don’t think they’re cataclysmic. I don’t think that we’re going to see a major recession this year. I think we will see a recession at some point, but it may well be 2018 or 2019 before we see it, and it may not be as severe as the last one.

There are a lot of problems out there, but they’re probably not the kinds of things that are so earthshaking as to really cause the degree of panic that you saw broadly in 2007 to 2011.

INN: Without cataclysmic events like that, gold and silver tend to not do so well. How do you see those metals doing this year?

JC: In 2010, we told our clients … that we thought that gold, silver and commodities were heading toward a cyclical downturn within a secular bull market. And that the prices could … probably peak around 2011, and fall for three to five years. They peaked in 2011, and we are four years into that downward cycle. We think that gold and silver probably have fallen pretty much as low as they will, and we’re looking for them to bounce along the bottom, and then start to rise probably later this year — perhaps in conjunction with the US presidential election, and a rise in investor concern about some of the economic and political factors going on at that time.

INN: So investors should be watching the presidential election. Are there any other catalysts? I hear US dollar a lot.

JC: Well, the dollar has been very strong, and I think it’s going to continue to be strong. I think there’s a great amount of misunderstanding as to why currencies rise and fall. But if you look at the US economy and the reasons behind the dollar’s strength, and then you compare the US economy to other global economies and major economies, I think you’ll probably see the dollar continue to be strong. Again, it may not continue to rise, but I don’t necessarily see it falling sharply from where it is today.

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One of our big concerns is the unintended consequences of poorly designed financial market regulations, and we are seeing a lot of problems start to emerge in banking and finance due to regulatory changes in Europe, the US, China that are poorly structured.

Another thing [is that] economists and politicians keep talking about the great advantage to the world economy of lower oil prices. But they don’t realize the extent to which oil and gas prices have been a major factor of fueling economies. The growth in output in oil and gas in the US in 2014 was equivalent to the growth in the total GDP of the US. And as the oil and gas prices come down and demand softens, what you’re finding are negative economic consequences, which I don’t think have been fully weighed into the market.

And then, of course, there’s debt. There hasn’t been any deleveraging since the great financial crisis. We’ve actually added more debt on a global basis, and most of the debt that we’ve added has been in governments.

INN: I’ve been hearing about peak debt. Can you talk at all about that?

JC: I don’t believe in peaks. You know, I didn’t believe in peak oil. I don’t believe in peak gold or copper. And I don’t believe in peak debt. And unfortunately, peak debt, unlike gold and copper and oil, is a non-physical thing. And, you know, governments can add to the debt. Those people who say that central banks have run out of bullets don’t understand central banking at all.

INN: Taking it back to metals a little bit, with lower prices comes less exploration spending and fewer discoveries. Should we be worried about what that means on a global scale? Are we setting ourselves up for future shortages? Are there no good discoveries left to be had? What are your thoughts on that situation?

JC: Let’s start physically. Geologically, there are enormous good new discoveries to be had. Economically, and in terms of the industry, we are shortchanging the future, we will see massive declines in production of copper, gold, silver and other metals because of the cutbacks in exploration and development that we’ve seen since 2012, and it’s going to continue.

Additionally, CPM Group’s done some work. The exploration spending data that everybody uses is not adjusted for inflation, it’s not adjusted for the much higher inflation in mining that you see, and it’s not adjusted for the changes and improvements in the survey over the last 10, 20 years. So … you take the exploration spending and it looks like there was this big boom, and now a big bust, but if you take that data and you adjust it for inflation and survey improvements, you see that in fact we are spending less on exploration and have been all through the boom.

So the situation is not that we’re now in a bust. The situation is much more dire — the mining industry simply hasn’t been spending money properly at sufficient levels really for 15 years.

INN: Finally, gold and silver is what we’ve been talking about, but they’re not the only metals that CPM Group covers. Are there any that you’re bullish on this year?

JC: We actually are kind of interested in oil at this level. Copper we’re a little bit worried about. Zinc is looking good. Lead is looking a little bit better. Platinum and palladium are interesting. I’m not enthusiastic on platinum on a long-term basis, but the price has fallen so low that I think it does have the capacity to rise. And palladium, I think, I am much more optimistic on both the short-term and the long-term basis. [The] price has been hammered down and I think it’s going to spring back.

And even with silver, I mean, we’re looking for silver to go up about 10 percent this year. That’s only taking it to $15, which is where it was in the middle of last year, but that’s a 10-percent return, which is probably better than you’re going to do on the S&P 500 (INDEXSP:.INX).

INN: That sounds a little reassuring. Thank you for joining me today.

JC: It’s always a pleasure.

INN: Once again, I’m Charlotte McLeod with the Investing News Network, and this is Jeffrey Christian. 

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