Denver Gold Forum 2015

Christian Bullish on Gold – Sort Of

by Lawrie Williams,

Denver, CO — A very well presented luncheon keynote at the Denver Gold Forum from CPM Group’s founder, Jeff Christian – perhaps almost public enemy No.1 for some of the out and out gold bulls. This is primarily because he is adamant that gold price suppression by the powers that be is a figment of the gold bulls’ and GATA’s imagination, despite some compelling evidence from the latter that at least in some times past gold has been seen as a dangerous element in the system by those whose job description might be seen as protecting the almighty dollar. The bulls might thus be surprised to hear that Christian is also actually bullish on gold – albeit not seeing any kind of significant rise until after 2018. At this time he feels that new mined gold production will be turning down sharply in response to the recent lower gold price levels and that this reduction will by then start to be giving the gold price a good boost with the supply/demand situation tightening in response to lower mine and refinery output.

He opened his presentation with a somewhat scornful attack on those who see a dystopian vision of the future. However he also commented that these ‘dystopian fantasies’ will indeed keep those worried about them buying gold and be price supportive, but for the wrong reasons. He averred that there was a huge disconnect between these visions of what the future might hold for us and reality. He believes we are in a ‘muddle through’ economy and that there may be difficult times ahead and is 100% sure there will be another major recession in the USA, but perhaps not until the end of the decade, nor how deep or prolonged this might be.

Contrary to SNL’s research – the subject of a presentation on the previous day – which suggested global new mined gold production may already have peaked, CPM Group analysis sees global new mined gold output continuing to rise, albeit by small amounts, until 2017. While Christian doesn’t really see any significant falls in the gold price immediately ahead he feels that it will drift on at around current levels, or a little above, until new mined production starts to dip sharply and then fundamentals will truly come into play. With Central Banks continuing to buy gold they will find themselves competing with investors to obtain diminishing amounts of physical metal and that will then stimulate the price to move to higher levels, albeit not to the kind of heights that some of the gold bulls are suggesting.

Christian and CPM have had a pretty good track record in calling the market in the past, although the extent of some of the price movements which have occurred in the past 20 years may well have taken them by surprise. So his views should not be ignored.

Christian also tried to clear up what he sees as a number of misconceptions about gold and various global economic trends. China’s economic ‘downturn’ he sees as pretty well non-existent. It’s a case of slowing growth rather than a downturn. This year he sees Chinese GDP growing at around 6% despite a huge amount of media reporting that suggests the Asian Dragon’s economy is collapsing. He points out that in actual value terms 6% growth today is more value creative than the 14% seen in 2007.

His views on the huge SGE withdrawals situation are also potentially enlightening. He commented that the deliveries out of the SGE are not representative of total Chinese gold demand but may be as much as 233% above this due to constant recycling of gold through the SGE by the jewellery sector in particular with 1005 of SGE gold effectively being in a loop. There are of course many others who would disagree with this interpretation, but the enormous discrepancy between SGE withdrawals and perceived gold consumption, which is seen as declining by CPM, and other mainstream analysts, while SGE withdrawals are running at record levels, does suggest some kind of rationalisation of this type. Others have come up with differing reasons for the data disconnects so one doubts that everyone will agree with CPM’s interpretation however. But it does seem to be one possibility for the vast disparity in the figures.

Christian also avers that there is no shortage of physical gold either on COMEX or in London, although there may be squeezes from time to time on what is immediately available. Again this doesn’t seem to take into account the low level of COMEX registered stocks prevailing at the moment, although the level of eligible stocks, at least a good proportion of which can be moved into the registered category, is actually high by historical standards, nor the backwardation on the London market which does at least suggest a certain tightness, albeit this may be just a temporary situation.

But overall, Christian is at least marginally positive on the gold price in the short to medium term and more so in the longer term, as mine production begins to fall off seriously. He is looking for Central Bank purchases to be maintained at around current levels, but sees them declining (but still continuing) if and when prices start picking up as he avers that at least some central bank purchases are fairly price sensitive.

Christian is an accomplished speaker on this subject successfully presenting his views as fact. As noted above, though, there will be some who disagree with his interpretations of specifics but again as also noted above he has a good track record in predicting turning points in the price pattern. His views on gold are very conservative by some standards or even over-optimistic perhaps in the eyes of a number of bank analysts who are calling for prices of $1,000 or below. With gold and the other precious metals almost always unpredictable, as witness the year to date performance of platinum and palladium considered by many analysts at the beginning of the year as likely to be the year’s best commodity performers, yet currently languishing near the bottom of the tree, even the best analysts can be wrong in their interpretations. As always time will tell.