Jeffrey Christian: Gold, Silver, PGMs — Short-term Prices and Key Drivers

I'm Charlotte McLeod with investing news.com. And here today with me is Jeffrey Christian, managing partner at CPM Group. Thank you so much for being here. Great to have you as always. Yeah, it's always a pleasure to be interviewed by you, Charlotte. You ask good questions. Okay, well, excited to see where we go today. We're catching up from our last interview back in March. And of course, we've seen the gold price continue rising since then. I think right now all the geopolitical tensions in the Middle East are really in focus. So I thought we could begin there. For me, I typically hear that this kind of event has a limited or fleeting impact on the gold price. So I wondered if you could put these events into context for the gold price. Well, you know, the effect of Middle Eastern unrest or political problems or military problems really varies greatly over time. I mean, obviously, in 1973, 74, it was enormous. 1979, 1980, it was enormous. There have been numerous times since then when it hasn't been as important. And one of the things that we've always said is you have to pay attention to what's really going on and to this perspective within the region. You know, and what we've seen over the last three decades is that Middle Eastern investors have been less concerned about the political problems between Israel and various Muslim nations. And, you know, the most prominent was when Iraq was fighting Iran, Iraq started shooting missiles at Kuwaiti tankers. The Kuwait government wanted the U.S. to re-flag those tankers as American ships and then bring a fleet of U.S. warships into the Persian Gulf to patrol and protect the oil flow. And the U.S. government, Congress debated it for a long time. People were saying, well, this could be a big escalation of the situation. Ultimately, the Congress agreed to do it. They sent in, I believe it was the Seventh Fleet into the Gulf and the gold price fell sharply. People in Europe and North America were like, what's going on? You know, the Seventh Fleet just sailed into the Persian Gulf. This should be higher gold prices. And, you know, we called some of our clients in Saudi Arabia and the UAE and Kuwait and said, what's your take on this? And they said, our problem is solved. You know, we just had the U.S. Navy sail between us and Iraq. You know, it's the U.S. Navy's problem now. Our problem is solved. And therefore, our risk and concerns have fallen sharply and we're selling gold, or we're not buying as much gold as we were yesterday. You know, so you have to understand the presence there. Now, that said, the current situation is somewhat different than a lot of the problems that we've seen over the last 30 years. And it's perhaps more like 1973 or 1979 than 1991 or other events there. So we're a little bit on edge, and you're seeing the oil prices on edge. The oil market is on edge. Oil prices have risen basis this. I think there's a greater concern that an Israeli-Iranian war at this point could become much larger. And I think it's got a lot of implications, not only in the Gulf, but in terms of global economic pressures and also global political pressures. Because, you know, Iran has been supplying drones and other military armaments to Russia. And Iran has been trying to establish sort of a military block that includes Russia and China. And it's going to be very interesting to see if Iran, which is clearly less powerful than Israel in terms of military might, it's going to be interesting to see that if Iran asks its would-be colleagues for military support, and they say, well, we can't do anything for you right now. We're sort of flat out with our own, you know, invasion of Ukraine, it could have major global political consequences. So I think this time is a little bit more important to oil and to gold than some of the previous crises that we've seen there. Very interesting and important context there. So thank you for going into that. Oh, yeah, go ahead. This is my 50th year of writing about commodities. And the first thing I ever wrote about commodities was in 1975. And it was about oil. And it was in the aftermath of the first oil embargo. So it's sort of like homecoming. Very, very interesting. I was mentioning how this is really front and center in the headlines right now. But usually you do a good job of going behind the headlines a little bit for us and pulling out things that we might not be noticing when it comes to gold drivers. So I wonder what else you are watching right now? What factors are really key for the gold price? Well, we're paying a lot of attention to economic trends, and economic trends, financial market conditions, demand for US treasuries, demand for the US dollar. So we're paying a lot of attention to that. And we're also paying attention, perhaps more attention to the way the financial markets are reading or are misreading some of those economic indicators. So you have a lot of people saying, well, I looked at the April data for consumer prices and producer prices and other factors. I looked at the May data, and I'm not seeing negative consequences of tariffs. Well, that's because most of the tariffs haven't been imposed. There have been threats of tariffs, and that did have an effect on the gold market and such. And it did have an effect on some commodity indicators. But for the most part, most tariffs haven't really either been imposed or taken effect. So if you look at consumer prices in the United States, for example, most of what was bought in April and May had been shipped. If it was imported, it had been shipped to the United States by April or May. So you wouldn't necessarily see the impact on their prices of future tariffs. So we're watching that because, as we often say, the economic trends are very important, but the way the financial markets interpret the financial trends and economic trends may be more important than the actual real economic condition. I also wanted to check back with you and say a little bit more about the situation in treasuries right now. You were mentioning before we turned the camera on that you're seeing people interpret what's happening in a particular way. You see something else playing out there. So I'm wondering if you can go into that. Well, yeah. I mean, there's a lot of talk, especially among gold and silver promoters, about how governments and investors around the world are trying to dump treasuries, get away from investing in US treasuries, get away from the US dollar. And there is a little bit of desire to diversify, but the reality is that US treasuries, along with gold and silver, are the go-to security asset. These are the risk protection assets. And if you look at overseas treasury purchases, they've actually been rising very sharply, like 10% in 2023, 8.5% in 2024. They're at record levels. More treasuries are held overseas than ever before, like more than $9 trillion. And the proportion of central bank monetary reserves in total that is in US dollars is pretty stable around 57%, 59%, 61%, which is the historic norm going back to the 90s. If you go back to the 80s, the US treasuries and dollars represented maybe 50%, 55%. So it's up from back then. But for the last 30 or 40 years, we're pretty much in range. But you'll hear people talk about treasury vigilantes striking. You hear about, last week, we had the 30-year bond auction, and I think it was $22 billion of 30-year bonds. And 30-year bonds are the longest term things. So people were saying, well, no one's going to want to buy a US treasury bond. But the bid to cover ratio was 2.4. And that's the number of offers to buy those treasuries relative to the $22 billion that was being on offer. So it's 2.4, which is a little bit higher than recent trend levels. And it's right in the range that we've seen since 2011. So there's no evidence that people are running away from US treasuries, US bonds, US dollar. If anything, there's evidence that they're running toward it. Now, the dollar's exchange rate is off about 6% since the beginning of the year, but it's up 150% from 2011, the end of the Great Recession and global financial crisis. And it's up double digits since it's 2018, 2019 based. So a lot of the stuff that you hear about people not wanting dollars and treasuries is just not true. Maybe true in a philosophical basis, but if you look at the actual numbers, people are continuing to use the dollar and treasuries as a safe haven. All right. So going back to how you're talking about people are looking at US economic data and not necessarily interpreting it correctly, when we spoke a few months ago, you were saying the US economy, it wasn't looking very vibrant. So I'm wondering how you would describe the state of it now. It's worse than it was a few months ago. We thought that we were headed toward a perhaps severe recession, second half of 2025, sometime in 2026. And we have deepened and extended the breadth and duration of the projected recession that we have in our long-term projections. We're looking at a greater deterioration of US economic activity and potential growth potential. So we think that the US economy is going to underperform relative to what it could be doing. And that that is going to probably emerge over the next four months. And I think this is a really good time to be talking about this because, of course, we've got the Fed meeting coming up later this week, and it sounds like they're very widely expected to leave rates unchanged. I'm wondering about your thoughts on what we'll see at this week's meeting. And if you want to talk about what you see coming in the rest of 2025, I think that would also be helpful. Yeah. Yeah. In terms of the FOMC this week, our expectation is that they'll hold rates unchanged. They've given every indication of that. The important thing is going to be what they say around that in terms of what are we looking at and what are we going to be leaning into. And our expectation, given that they've seen the same economic data that we are, and given the comments that they've made, is that their view will be that they are concerned about an economic weakening and they are paying close attention to the data there, but they're also very much concerned about inflation. And if you look at the CPI, for example, for May, what you saw was that the rates were down a little bit for headline and flat for the core. And the decline in the headline inflation was almost exclusively energy prices, which had fallen sharply, and now they're rebounding following the Israeli-Iranian war breaking out. So I think the Fed is looking, and the Fed has a very large economics department that focuses on inflation and labor, because those are the two things that they're chartered to pay attention to. So they understand the composition of various inflation indicators better than anybody else. And the same is true in the labor market, in the leading indicators of labor. And the leading indicators of labor are weakening, and the leading indicators of inflation are flattening to showing a little bit greater increase. So I think that the critical thing is not going to be whether or not they hold rates unchanged, it's going to be what do they think about, what are they focusing on looking for, because that's really going to be the key. So in terms of what we're looking at, we're watching a wide range of factors. You've seen a very sharp decline in the number of ships that are being, cargo ships that are being sent to the United States with containers, and a lot of cancellations of cargo ships that had been scheduled to come from Asia and from Europe and other countries to the United States. And so you're seeing a reduction in imports, reduction of trade, you're seeing pockets of problems showing up. There's a meatpacking company in Omaha, very large one, that I say raided, I think this weekend, and they took up 76 undocumented workers. And the meatpacking shop said, basically, we may have to shut down or at least go to severely reduced output, simply because Americans don't want those jobs. And even if you're a documented immigrant, you're resistant to go there, because ISIS picking up documented people who were here legally in their net. They're not really discriminating and looking for the criminals that they say they are, they're grabbing everybody. And so even if you're a documented worker, you're resistant to go to work in a place like that because of the risks to you being scooped up. So you are seeing a lot of things going on that suggest we're going to see a weakening in overall economic activity, not only in the United States, but on a global basis. The number of people seeking to buy a house has plunged over the last three months, while the number of people looking to sell their houses has skyrocketed over the last three months. And the number of people being laid off is increasing both in the government and in the private sector. And the expectations of layoffs on the part of workers has risen sharply. So they're not spending the money that they had. And that's not only true in the United States, it's true in China, it's true in Europe, it's true in Canada. You're seeing this on a global basis. So we're looking at a pretty hostile economic environment in the second half of this year, which also will coincide with the beginning of the campaign cycle for the 2026 by-elections in the United States. Right. Well, we'll go back into that kind of thing once again. Okay. Yeah. If we put all of this together, it's looking like a pretty positive picture for gold, just going back to what's happening with the gold price. But I know that sometimes in the summer, we go into the doldrums when it comes to gold people, people sell in May and go away, that kind of thing. What do you see coming for the gold price given all the elements that you've been talking about? It's interesting. The gold price started 2025 at $2,660 an ounce. And by April, it was $2,900. And now it's gotten up to $3,500. Our main economic scenario had been that the price would rise into April or May, and then soften June, July, August, possibly into September, and then start rising. And we were saying that in that softening, when the price was $3,300, which was two weeks ago, when the price was lower, we were saying that we thought the price could fall as much as $3,000, maybe even $2,900. But now we're saying, okay, the price has gotten up there. It was $3,400 some odd dollars earlier today. It's testing $3,400. We're thinking that maybe the base for the summer is $3,200. So we're still saying that there's the potential for some summertime doldrums and some reduction in it. But what we're seeing is that the demand for gold and silver as price risk manager, as risks assets has held up. And the reason for that is that the economic and political problems and chaos haven't lightened up. We were thinking that by the time you got into June, July, August, not only would you have some seasonal weakness, but you'd also have a situation where financial markets might have calmed down and taken a less pessimistic outlook to the economy, simply because the initial shock of Trump policies was in there and had been digested. But what we're seeing is a prolongation of that shock period. And it's being prolonged by things beyond the Trump control, but it's also being prolonged by them. They're creating chaos too. And you have this whole issue with this boondoggle, big, beautiful bill, which has all kinds of things in it that allows the Trump administration to ignore court orders and to indefinitely suspend elections. It's buried in there and there are a lot of other things. And it was passed by the house and you now have a significant number of house Republicans said, well, they gave it to us at 1030 at night and told us we would vote on it the next morning. So I did not read it. And I have, it's 1,063 pages. I have it on my desk here behind me. And it's legal jibber, legalese. You have to be very careful. You can read a passage and not understand that what it's saying is the administration, the passage that says the administration is free to ignore court orders. It doesn't say that. It says that the administration does not have to proceed with court injunctions and orders if blah, blah, blah, blah, blah. So you've got to read it very carefully. And with all due respect to some Congress people, a lot of them aren't careful readers. So it's a big issue. So not only do you have opposition coming from the Democrats and independents and other governments and state governments, you also now have opposition growing within the Republican party because starting in August, September, you have the 2026 election cycle. And a lot of these guys are realizing that their alignment with Trump may cost them re-election. The guys who have been supporting a lot of this are the people who are losing their government support systems, their government food stamps, their government housing support, their heating and air conditioning support, Medicare, Medicaid. Now, a lot of Trump supporters collect all that stuff. And as they start losing that over the next six months and 18 months, they may just take it out on the people who voted that in. So it's going to be a very volatile situation. And that volatility is continuing through June, July, August. So yeah, we still may see some softness in prices, but it's not going to be as significant as we think. In addition to which you have situations in the gold market, in the silver market that could support higher prices too. There's definitely so much going on, a lot of volatility. I could see where that could come from in any number of ways. I think let's move over and talk a little bit more about silver. So we've seen some excitement in silver the last couple of weeks or so with the price getting past 35 and 36. And I think people have been waiting for silver to start moving for quite some time. And they look at this and they wonder, is this a move that's going to stick? Is it going to pull back? Will it keep going higher? So I wonder if I could get your take, and maybe we talk about some of the factors that are driving this rise and that will help us understand what's going on. Yeah, I think the major factor that has been driving this rise has been an increase in demand for silver by investors. And some of it's institutional investors, some of it is individual investors. And we're really seeing that in the ETFs and in the wholesale markets, so 1,000-ounce bar type investments. What you're seeing at the same time is a lot of selling, profit-taking by people who had bought silver in 2021 when the price spiked up. And dealers are telling us people who bought silver in 2011 when the price was 35, 40, got up to 49 something on an intraday basis, people who bought silver back then are selling. And we've had dealers across North America tell us that one of their major problems is running short on cash because they're net buyers of silver, 1-ounce, 10-ounce, 100-ounce pieces, the retail stuff. So that's a headwind on the price. But what we've seen, while those guys are selling, I think the ETF holdings, silver holdings rose, I think, 21 million ounces in the first 10 days of June. And what that represents are a lot of investors who want price exposure more than physical metal. And they're not looking for 1-ounce or 100-ounce bars, they're looking for price exposure. They tend to be generalist investors. They tend to have a stock and bond trading account. They can go on and buy an ETF with a few clicks of the keyboard. Whereas if they wanted to buy physical metal, they'd have to go down to a coin dealer. In many cases, they'd have to figure out who's a reputable coin dealer because a lot of these people have never bought physical metal. And so you're seeing generalist investors across the board buy silver, and you're seeing institutional investors buy silver. And there is this headwind, which has caused the price of silver to lag that of gold, which is being created by that selling by other investors. Those are the two big factors that have been pushing the silver price up, but not quite as high. In addition to that, you had a lot of silver coming into the United States, November, December, January, February, I guess probably into March. And that flow has ended. The silver hasn't gone back to Hong Kong or Europe the way the gold has because it's more expensive and because most of that stuff was brought in and is owned by bullion banks and trading companies. And it came into the United States because quite frankly, physical demand for silver from both investors and from fabricators is stronger in North America than it is in Europe. So if I'm a bullion trading entity, bank or trading company, and I say, okay, well, I've got silver in the United States, I could ship it back to London. But when it comes time to sell it, there's a greater probability I'll be selling it to somebody who wants to deliver in the United States. So that's there. Now that means that you've got a lot of silver stacked up in North America, 500 million ounces in COMEX depositories, but you have additional metal in Canada, in RCM, in other depositories. You have depositories in Florida and Nevada and California and elsewhere that have a lot of silver stacked up that don't show up in COMEX. So you've got a lot of silver around. But you also have like, the last time I looked, it was like 490 million ounces of open interest in the July COMEX futures contract. And that's two weeks from first delivery. So most of the people have those shorts, those are hedges of their physical inventories. They keep those hedges in place, but they roll them forward. So they'll be buying back their Julys and selling September futures to keep that hedge in place with the next active futures contract. That buying back of the Julys could push silver prices higher. So if you really want to talk granular prices, we wouldn't be surprised to see the price of silver fall to $33, $34 an ounce and go up to $40 an ounce and then back to $33 an ounce over the next four weeks. Wow. I think we know that silver is volatile and that would certainly be showcasing it there. So I think that helps me understand what's going on in silver. I think one more point on silver, you mentioned it's lagging behind gold and a lot of people are pointing to the gold-silver ratio right now saying it's very high and this is quite significant. Is that something that plays into your analysis of the silver market very much? The gold-silver ratio only factors into our analysis insofar as we know that there are various investors and speculators who buy and sell gold and silver based on it. So to the extent that they're powerful, it has a self-fulfilling prophecy, but there are other factors that are much more important. So we pay attention to it because we know that other people are paying attention to it, but there's no physical or economic or financial reason for the ratio to be anything in particular. We just look at it as a barometer of the relative health of physical demand for gold and silver. Got it. I understand what you mean. Okay. We will leave gold and silver there for now because I want to leave time to also touch on platinum. So it's a metal that we sometimes talk about and it's another one that's really in the spotlight right now because we've seen the price break out of a range that it's been in really for years at this point. I know you recently posted a video going over what's happening there and talking about how it's kind of based on misconceptions that people are having about the market. One of the most interesting for me is that there is actually no platinum deficit that you're seeing. So I wondered if you could go into that because that's a point that many people mentioned. Right. I've been doing platinum research since the late seventies and I developed really, I guess, people say it was the first platinum metals market report in 1981. And I've maintained that data. And our data is classic commodities research 101. So it's total supply, mine production plus secondary recovery, less fabrication demand equals a surplus or deficit. You don't include investment demand because it's radically different. And investors buy and sell commodities for reasons other than fabricators. And when they buy it, they don't change its nature. It stays as refined platinum. And as refined platinum, it can be resold into the market on a moment's notice. So classic commodities research does not include investment demand in the supply demand balance. Now, starting in the 1990s, people promoted precious metals started including dummy variables for investment demand into their supply demand balance because they were marketing silver and gold and then later platinum, and they wanted to show deficits. Now, if you include those dummy variables for investment demand, you can say, oh my God, the platinum market has been in a deficit for years. It's very tight. But if you use classic commodities research and you don't include that, you have a platinum market that's been in surplus for like 43 of the last 50 years. So the reality is that the platinum market's well supplied. And our estimate is that there's a pretty large surplus this year, partly because auto demand continues to be weak and the auto industry is the largest user of platinum. And also, mine production, which suffered last year in several countries, seems to be recovering this year. So we have a healthy surplus this year that we're projecting, and that should keep the price up. And that surplus, by the way, yeah, you said the price of platinum is basically traded between $850 and $1,100 since 2015. So 11 years now since the South African strike in 2014. And the fact that the platinum price has been moving sideways correlates really well with the concept of an ongoing surplus. If you had a persistent deficit, the price of platinum would be higher, but it's not. And so the price of platinum is sort of prima facie evidence that, yeah, this is a well supplied market. And so we look at our data because we have a very good track record calling the price of platinum since 1981. We started keeping records of our intermediate term. We have a very good track record calling the platinum price based on our research, which suggests that our research is probably more accurate than the stuff that's being put out by promotional agencies. So this move then in platinum that we are seeing for you, are you seeing that more as a blip that's going to fade back away because we do still have this deficit? It'll go back into that range that it's been in for years? Yeah, I'll be honest with you. I mean, we spent a fair bit of time in our morning market meeting, which we have a meeting every morning where we talk about what's going on in the market and what each of us is going to be doing. And we spent this fair bit of time talking about platinum today saying, are we missing something? We know that if you look at it, the price of platinum took off in late May. And it took off in late May just as a marketing document came out that said there's a massive deficit and Chinese investors are buying platinum jewelry because platinum is cheaper than gold and the auto industry will recover. And none of which we necessarily agree with, but that's when the platinum price took off. If you look at the platinum price, I'm looking at it right now, it was in that range until the end of May. And it's only since the beginning of June that it shot up from $1,050 to as high as $1,300 some odd dollars today. So you've got all that. And then on top of that, you have one other factor, which is July is an active contract delivery month on the NYMEX, the New York Mercantile Exchange Platinum Futures. And you've got about 3 million ounces of open interest in the July contract and about 300,000 ounces of registered and eligible inventories. So you're some of this is upward pressure on the shorts who are going to be buying back those Julys and replacing them with Octobers. So you have some futures market pressure on pushing the price up. But mostly what we've seen over the last two weeks, really, is that it's been short-term speculative buying predicated on that marketing report that came out. And we have people say, well, platinum prices have been rising all year long. It's like, no, they've been rising all month long. And the month is only half over. If you look at the price from January onward, it's basically been in that range, fluctuating, but within that range until the end of May. Okay. I think that helps me understand a little bit more what we're seeing here. And I feel like since we've gone through gold, silver, platinum, I should throw in a question about palladium just to round it out. Is there anything you're seeing of interest in that market or is it another one where we are likely to see kind of a more flatter trade as the year progresses? Palladium, you know, palladium prices have risen a little bit over the last two weeks. Pretty much we think in relationship to platinum prices. Investors came into platinum, the price started rising sharply. Other investors said, oh, well, will palladium be next or will palladium be going up? Part of the narrative behind a bullish story for platinum was a revival of the auto industry. And we don't see that because of the economic headwinds. And the largest auto market now is China. Half of the autos being sold in China are battery electric vehicles that don't use PGMs. Of the other half, they're mostly gasoline powered vehicles. So they will use palladium intense catalysts, but they also tend to be smaller vehicles than what we use in North America, you know, our prairie cruisers. So, you know, I guess there's some bullishness on the part of speculators that, hey, palladium has been trading in this range too for several years and maybe it's time for a revival. Right. So kind of a tag along situation there. Okay. All right. So we've gone through the precious metals. I think that covers all the topics that I wanted to go over with you. But before I let you go, any final thoughts you would leave investors with right now? Well, I think that, you know, rational expectations should be the key. And, you know, it's interesting because, you know, one of the things that we've been talking about and I hear other advisors, mainstream advisors talk about is, you know, yeah, we're probably headed toward a recession. Recessions come and go. And this is probably not the end of the world. You know, it could be a bad recession. There are people making policies that could exacerbate it. And the recovery from the recession may be weaker than past recessions, recoveries. You know, we may not go back to the kind of economic activity that we saw prior to this recession. But it's not a catastrophe. It's a series of major problems. It's very frustrating because I think that a lot of these problems could be solved relatively easily and painlessly by the broader society. But there's no political will on the part of political leaders or voters to make that happen right now. So it could be a tough time for a long while, but it's probably not the end of the world as we know it. Okay. Well, I think that's a nice note for us to end on for today. So thank you so much for coming on to talk about the precious metals. You're welcome. It's good to talk to you again. Of course. And we'll make sure to have you back soon and check in on all these things. For now, I'm Charlotte McLeod with investingnews.com. And this is Jeffrey Christian with CPF Group. Thank you for watching. If you like this video, make sure you hit the like button and subscribe to our channel. We'd also love to hear your thoughts. So leave us a comment below.