Interview: Jeffrey Christian sums up 2018 themes and looks to 2019

Jeffrey Christian is the managing partner of CPM Group, a commodities research and management consulting and financial advisory firm in New York. He founded the company in 1986, spinning off the Commodities Research Group from Goldman Sachs & Co., and its commodities trading arm, J. Aron & Company. Christian is an expert on precious metal markets and took time to speak with The Northern Miner about his outlook for gold, silver and platinum group metals (PGMs) in 2019.

The Northern Miner: Did anything surprise you about precious metal prices or trends this year?

Jeffrey Christian: It’s funny. We were just talking about that with one of our clients. This year the theme was “prepare and diversify.” The thinking was that prices of precious metals wouldn’t rise sharply this year, although there are a variety of factors that will probably push prices up sharply at some point in the next five years, but that 2018 would be a year of prices moving sideways. That said, silver, gold and platinum all fell over the course of the year, so prices were lower than what we thought. So we were right that it wouldn’t be a bullish year, but we were wrong because the prices actually declined and have moved to a somewhat lower level. That was the big surprise. We didn’t think prices would rise, but the fact that the prices fell in the second quarter and that they haven’t recovered significantly since then surprised us.

TNM: What is your outlook for 2019?

JC: We’re looking for somewhat higher prices. If the theme for 2018 was “prepare and diversify” and if you have an opportunity to diversify your wealth into precious metals in preparation for more hostile economic times later, you should. We’re now trying to come up with a new theme for 2019. The hostile conditions did not emerge in full force in 2018. We do think the financial, economic and political trends in many countries will all be supportive of higher prices, but they won’t really run away in 2019 yet. So next year will be better for gold and silver, but don’t expect too much. It’s true of platinum, silver and gold. Palladium has been running contrary to those other three and we think palladium prices will stay high, because there is tight fabrication demand and investor support behind the metal. But we don’t think palladium will continue to rise at the rate it has been. At the same time we don’t necessarily see it falling sharply. We’re more bullish on gold than silver and more bullish on silver than platinum. We do think the platinum price is too low, but any increase in price seems likely to be modest in 2019.

TNM: What are your specific price forecasts for gold, silver and PGMs next year?

JC: We’re looking at the gold price to probably rise 2% or 3% in 2019.  So if the gold price average through November 2018 was US$1,269 per oz., maybe it’s going to be US$1,300 per oz. next year, and the price might reach US$1,340 to US$1,380 per oz. by the end of next year. There will be some strength, but it’s not a runaway. Now obviously that can change if the political and economic environment changes.

For silver we see a more forceful rise, but that’s partly because silver has been weaker this year. Through November it averaged US$15.68 per oz., and that was off 8.6% from 2017. Next year we think it will average US$17.70 per oz., so it would be about a 13% increase. But part of that increase is just offsetting this year’s decrease, whereas with gold, the price was flat this year. It didn’t fall 8.6%, so we don’t expect to see it rise that much. We’re not looking for a super large increase in gold next year, but with silver, because it was so weak this year, we think you’ll see some recovery.

TNM: Palladium?

JC: We’re looking at an average of US$970 per oz. for the year in 2018 — a lot of the increase this year was in the last few months — and expect an average US$940 per oz. in 2019. So it will be a little bit lower, but we don’t see it going back to the levels in play in 2016 and 2015. Prices got down to US$550 an ounce in early 2016. We don’t see that happening.

TNM: It’s a complex time. How do you see the political and macroeconomic landscape affecting the precious metals and mining space?

JC: Obviously the storm is gathering around [President] Donald Trump and the Republican party, and these problems are going to be an issue. We’re waiting to see what happens with the Mueller commission. It looks nasty and ugly. In terms of the U.S. economy, you’ll see somewhat decent economic growth, but probably moving away from peak economic activity to something lower. And that will probably be reflected in lower stock prices.

You’ve got Donald Trump and a dysfunctional government, the trade wars between China and the U.S., and Canada is being sucked into that, and ongoing issues with the British government and Brexit. Two months ago the probability of a second referendum on Brexit was probably 5% and now it’s significantly higher, so the U.K. government is going to be having problems. You’ve got problems in Italy and France, and the European Union is having parliamentary elections next year at a time of increasing nationalism, so Europe, the U.K. and the U.S. are all going to have political problems. They might not push strong demand for gold and silver, but they will create an atmosphere of: “We should be preparing for worse times,” and that will create a better environment for gold, because investors buy gold as a safe haven. And if they’re looking at the horizon, the political environment is bad in the U.K., it’s bad in Europe, in the U.S., and in various Latin American countries. That creates an environment where investors say, “Well, maybe I should have more gold and silver than I do.”

TNM: How do you think the U.S. Federal Reserve will act in 2019?

JC: Our view is that the Fed will continue along the lines of what it has been saying. There’s an increase in the view over the last couple of weeks that the Fed might pause soon and lower than it had indicated earlier this year, and our view is that it won’t.  It will keep its options open of doing that, but in so far as we’re not expecting a recession in 2019 in the U.S., we’re expecting somewhat lower growth … but still relatively healthy growth — there’s really not an impetus for the Fed to halt what it has been doing and what it has said it’s going to do. There will probably be two or three — or even four — interest rate hikes in 2019, partly because the economy will support it and partly because it has to rebuild its credibility, which suffered from 2008 through until, well, pick a year, say 2017. The Fed will maintain its policies, but it will be cautious and will be looking for signs of greater weakness than everybody expects right now.

TNM: What’s your view on mergers and acquisitions (M&A) activity in the precious metals space in 2019?

JC: It will continue. We’ve seen some mergers like Barrick Gold and Randgold, and some acquisitions of smaller companies by larger companies, and in so far as you’ll see relatively low metal prices but somewhat higher metal prices next year, we will see continuing M&A in the sector. People say they think they can do this because they think the price of gold is going to go higher. You’ll see M&A activity continue because executives in the mining industry will say, “OK, prices are a little higher, but we think they’re going higher later, so it’s a good time to buy assets.”