CPM Group: Things Will Get Worse for Gold Before They Get Better

While the first few months of 2019 have seen gold prices begin to rebound, New York-based CPM Group released its 2019 Gold Yearbook on Tuesday (March 26), stating that the yellow metal will see a slump in the middle of this year before regaining momentum.

Investor interest in the yellow metal crashed and demand for physical gold spiraled downward in 2018. However, towards the end of Q4, a basket of geopolitical concerns shifted interest back to gold as investors sought it out as a safe haven within a turbulent market.

Despite this, CPM believes that the precious metal will find gains in April before beginning its descent below the psychological level of US$1,300 per ounce.

“We think the price probably gets a little stronger yet in March and April and then comes off into the second quarter and then maybe moves down to US$1,280,” said Managing Partner Jeffrey Christian.

“Our expectation is that US$1,280 may well hold,” he added.

In fact, Christian noted that the yellow metal could experience the same price pattern that it faced last year, and it could trade as low as US$1,210.

As previously mentioned, gold gained momentum in Q1 of this year thanks to concerns surrounding a possible US recession, coupled with ongoing geopolitical concerns and a drop in the US dollar.  

In February, prices averaged around US$1,320, considerably higher than the 2018 low of US$1,199 in September of last year.

However, as CPM noted, recessionary fears have eased, with US gross domestic product now forecast to expand 2.4 percent in 2019 as growth picks up in Q2 and Q3.

“We think as Q2 and Q3 grow, investors will back away from gold a little bit and the price will go down,” said Christian. “Then, in Q4, people will become more concerned about the state of the US and global economies once more and gold could rise.”

CPM also noted that investment demand for gold weakened in 2018, but a slight improvement is expected for 2019 to approximately 17 million ounces.

Central banks increased their buying towards the end of 2018, and CPM believes that they are likely to remain net buyers of gold.

Interestingly, the firm does not see a pause in US interest rates and a flat greenback as items that are likely to impact yellow metal prices in any significant manner.

Looking over to supply, CPM expects a slight increase in global mine supply of the metal in 2019 after a 1.5-percent slip to 95.8 million ounces last year, which was largely due to the closure of Chinese mines that were unable to meet environmental standards.

However, CPM pointed out that mine supply will begin a four-year decline beginning in 2021 as a result of reduced investment in the mining sector from 2013 through 2017.

“It’s a matter of timing whether [gold prices] move up sharply over the next couple of years or over a three- to five-year period,” stated Rohit Savant, director of research at CPM.

No matter how 2019 turns out, Jeffrey Christian still believes in gold’s potential to reach high levels. The Investing News Network recently spoke with Christian at this year’s Prospectors & Developers Association of Canada convention, where he stated that a deep recession in the coming years will likely support a surging yellow metal.

“A deeper recession could have severe financial constraints on a global basis five to seven years from now. So that’s why we are saying the price [of gold] will rise sharply then,” he said.

“There are political and economic financial market factors that support that view,” Christian added.

As of 10:56 a.m. EST on Wednesday (March 27), gold was trading at US$1,310.70.

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