Jeffrey Christian, managing director of CPM Group, provides insight on gold, lithium, palladium and the potential for a stock market correction.
At the Vancouver Resource Investment Conference, the Investing News Network connected with Jeffrey Christian, managing director of CPM Group, to talk about what’s ahead for 2018 and beyond.
Christian expects a modest increase for gold in 2018, with growth relatively flat in the first half of the year. He expects the price to somewhat accelerate in the second half of 2018 and into 2019. Christian is skeptical of the theory that cryptocurrencies are taking investors away from gold, and said what is “distracting” investors from gold is the stock market.
He said investors should expect “relatively decent economic performance this year with gathering long-term storms,” and noted that he wouldn’t be surprised to see a market correction of up to 20 percent in the S&P 500 (INDEXSP:.INX) and the Dow Jones Industrial Average (INDEXDJX:.DJI) over the course of the year. “We think there’ll be a much bigger financial crisis five to seven years from now, and then you could see a much larger decline in US equity values,” he explained.
In terms of lithium, Christian is skeptical of the need for new mines outside of Chile and Argentina, “where the deposits are much richer,” especially if a major electric vehicle market develops and a lot of the lithium used in car batteries gets recycled.
As the world continues to use vehicles with combustion engines, the demand for palladium to coat autocatalysts is expected to remain relatively stable. Christian expects the palladium price rally to continue for awhile, with prices strong in February and March due to high interest in the March NYMEX futures contract. “But at some point that gets resolved. When that happens, the palladium price can come off $100 or 10 percent easily,” he said.
Watch the video above for more insight from Christian on precious and battery metals in the year to come. The transcript for this interview can be found below.
INN: I want to just start with gold. So we know in 2017, it surpassed $1,300, what do you see happening for gold in 2018?
JC: Well, we’re kind of looking for only a modest increase in 2018. Maybe the first half of the year will be relatively flat. I wouldn’t be surprised to see it get up to $1,340 to $1,350 yet this month or so, but then come back down to $1,250 or $1,280 as soon as side trade, sideways in the first half of the year. In second half of 2018 we think you’ll see some acceleration in gold prices with even further acceleration in 2019 and beyond.
INN: I know some people have been mentioning that cryptocurrencies are taking away some of the investment from gold, what do you see happening there?
JC: I’ve been a big skeptic of that and a critic of that theory. I mean if you’ll look at what’s happening in the gold market and the financial markets, our view is that what’s been distracting investors from gold is the stock market. The thing about the stock market is a $70 trillion dollar market with quadrillions of dollars of derivatives trading against it. The gold market is about a $3 trillion market with several trillion dollars of derivative trading against it and the cryptocurrency market is about $500 billion. So if you do a little diagram of the relative size, equity market is gigantic with billions of investors worldwide, the gold market is gigantic with billions of investors worldwide and the bitcoin market and cryptocurrency market is a minuscule sideshow with fewer than a million people estimated to be investing in it. So when you say, “Well I think that investors are not buying gold because they’re investing elsewhere,” I think what they’re doing is they’re investing in the stock market which has been moving steadily higher for 10 years now with extremely little volatility and there have been some people who have probably moved into bitcoins from the speculative trading perspective away from gold, we think the vast majority of the money that’s not being otherwise invested in gold is being invested in stocks not in cryptocurrencies.
INN: And there’s been some concerns as well about a market correction happening this year? Is that something that– what are you’re thoughts on that?
JC: You mean on the stock market?
INN: Yes, in the stock market.
JC: Yes, our view is that you probably will have relatively decent economic performance this year, with gathering long-term storms and I wouldn’t be surprised to see a 10, 15, 20 percent market correction in the S&P 500 or the Dow Jones over the course of the year. It’s interesting to note that other countries stock indices haven’t done so well. Longer term, we think there’ll be a much bigger financial crisis probably five to seven years from now and then you could see a much larger decline in US equity values. If you look at the relatively shallow economic crisis we had in 2001, and if you look at the big economic crisis we had in 2008, 2009, in each of those instances the S&P and Dow fell about 50 percent. So, were looking for a much bigger decline in the long run but right now, we think that yeah the market has been a little bit overheated in terms of the stocks and you could see 10 to 20 percent decline.
INN: So, moving away from precious metals, what do you seeing in some of the battery metals and the energy metals. You said that you’re looking at lithium and you’re gonna be taking on that at the conference here.
JC: Well I’m speaking tomorrow on the outlook for precious and energy metals. And we’re on record as being relatively skeptical about the need for new lithium mines. Even if you do see electric vehicles come in as a major form of automotive power, it’s going to take a lot longer than a lot of lithium mining promoters have said and you have a tremendous amount of established lithium production. I can see new mines in Chile and Argentina where the deposits are much richer, but I really can’t see the need for so much lithium as to warrant higher cost, new mines being develop elsewhere. In addition to which, if you do see electric vehicles come along and you do see them using lithium-ion batteries you have such an explosion of demand in lithium that you’ll start seeing the lithium actually recycled from batteries. Right now, lithium-ion batteries don’t have the lithium recycled its just gets burnt off because its doesn’t make economic sense. But if you had a major electric vehicle market using lithium-ion batteries, then you probably would see lithium recycling. So I can be bullish on electric vehicles and lithium-ion batteries and still bearish on lithium mining – new lithium exploration and development mines outside of Chile and Argentina. Now, in addition to which, you don’t know there’s gonna be electric vehicles and you don’t know that they’re gonna be using lithium-ion batteries, ’cause the technology it has the potential for changing over the next 5, 10, 20 years.
INN: So then would say that the rise we’ve seen on lithium prices, is that something that may not last in the longer term?
JC: The rise on lithium prices that we’ve seen in the last few years is reminiscent of the previous rise in rare earths which fell back to earth and molybdenum which fell back to earth. It’s a short term factor partly driven by market fundamentals but more driven by investors seeking to buy lithium because they’ve heard it’s the next big thing.
INN: And while we’re at it, is there anything else that you wanted to talk about? Anything that’s been on your mind?
JC: Oh there’s so much that I been on my mind. When we we’re talking about gold and silver, we spend a lot of time working at global economics and financial markets and politics and then when we talk about energy metals, we talk about emerging energy technology, and in between of those two things are the platinum group metals. They sort of precious– where they are precious metals, they’re not financial assets in the same way as gold and silver, but they have some of that. But they are also energy metals if you will because they are using autocatalysts and a lot of people have been deprecating them because they think there’s gonna be this very rapid transition to electric vehicles. We usually take our long term projections out ten years. Last year when we did our platinum group metals projections, we took them out 33 years because the changes that are coming in automotive propulsion technology are not going to really emerge in any meaningful way in the next ten years. It’s going to between now and 2050 before you really start seeing how energy propulsion technology shapes up.
INN: So then can we expect the palladium rally to continue? Obviously in 2017, palladium really took off, surpassing platinum.
JC: Palladium has been rising for variety of reasons and the big part of increase that we saw in 2017 were investors moving into palladium. You also have what they call congestion in the New York Mercantile Exchange futures delivery system, which has caused the spikes up in May-June last year, August-September, November-December into January and that will continue for a while. We have very high open interest in the March NYMEX futures contract. We’ll see palladium prices strong in February and March because of that. But at some point that gets resolved and when that happens the palladium price can come off a hundred dollars or 10 percent easily.
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Securities Disclosure: I, Melissa Shaw, 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.