By Shrea Paul and Roshni Devi

MUMBAI – With a mercurial president at the helm in the US, the bull run in gold prices is expected to continue for the time being, Jeffrey M. Christian, managing director at New York-based CPM Group, told Cogencis.

“It (bull run) will not dissipate until something is done to stop the irrational and unpredictable, economically destructive tendencies of US President Donald Trump. That may not happen, but as the Republican Party is suffering from it there could be efforts to restrain him later this year, in Oct-Dec,” Jeffrey said in an exclusive interview.

Gold has rallied as much as 21% since the beginning of the year, to levels not seen in over six years in August, egged by a slowing global economy because of a prolonged US-China trade war.

Currently, gold futures on COMEX are at around $1,534 an ounce after climbing to a multi-year high of $1,565, earlier in August.

Christian thinks that trade wars and other issues could tip the world into a short, shallow recession next year, while a more severe global recession would be years away.

The US-China trade war has been dragging on for a year now, and has resulted in an economic downturn with investors fearing that things may take a turn for the worse. Leaders of both the countries have been blowing hot and cold over the negotiations, with no end in sight. 

“Those gold marketing people who are warning of impending doom do not understand the capacities of central banks and governments to respond to financial crises that their own bad behaviour creates,” he added.

Following are edited excerpt of the interview:

Q. Till when is the bull run in gold prices expected to continue? Do you see a pullback anytime soon?

A. CPM Group would say there are two bull runs to pay attention to. One is the shorter-term run since the second half of June, which could dissipate any moment, but may not be a prolonged decline. It will not dissipate until something is done to stop the irrational and unpredictable, economically destructive tendencies of US President Trump. That may not happen, but as the Republican Party is suffering from it, there could be efforts to restrain him later this year, in Oct–Dec. That could calm markets. We would not see prices falling sharply, however. They could drop back to $1,400 or so, but not back to the lows seen last August through May of this year. Rather, it would likely stop rising, fall back somewhat, and consolidate at a higher level than they were at a year ago.

The second bull run is the more important one, the long-term rise in prices. It has begun. We expect prices to rise sharply for years to come, as the world deals with the destruction of international economic, monetary, financial, political, and social organisation. Nations and the world as a whole are facing many problems, and the level of international cooperation needed to address these issues does not exist. These broad issues are expected to cause investors to buy more gold over the next four or five years than they are buying at present. The CPM Group expects this to drive gold prices much higher on a longer term, sustained basis. Prices could top $2,000 on an annual average basis–temporarily–at some point in the next 5-10 years.

Q. Central banks have been purchasing gold at a significant rate in 2019, even with prices at multi-year highs. Is there any point at which price-sensitive central banks will slow down their purchases?

A. Central banks are price-sensitive, much more so than private investors.

We should point out that long-term investors have not been buying physical gold during the rise in prices from June to August. In fact, there has been very little investor demand for physical gold during this run-up in prices, with most of the buying coming in futures, options, forwards, and exchange-traded products from shorter-term speculators.

We are waiting to get data for July and, later, August to see if central banks have already pulled back. We believe they have, but data is lacking to support that view at this time.

Q. What is your take on the global economy? Do you expect the US Federal Reserve to cut rates further this year and aggressively next year?

A. While we expect the Fed to cut rates further this year, we see the global economy as having a good deal of resilience at this point. Clearly, Trump’s trade wars and other issues could tip the world into a recession. We might see a short, shallow recession next year. However, a larger, more severe recession and renewed global financial crisis may be several years away–perhaps delayed until the middle of the next decade even. That depends on the political leadership, or the lack of it.

Gold investors need to remember this: Most of those people telling us that a sovereign debt crisis is going to blow up the global economy have been saying so for decades, not years, and they have been wrong. Things got bad in 2007–2011, but then they got better. Those gold marketing people who are warning of impending doom do not understand the capacities of central banks and governments to respond to financial crises that their own bad behaviour creates.

Q. While exchange-traded funds have seen a rise, it’s the exact opposite in case of physical demand for gold coins. What will it take for long-term investors to come back to the market?

A. Longer-term physical gold investors have not been buying in the rally since June. Many actually have been selling. Many have soured on gold due to the constant mis-marketing warning of economic collapse that has not come.

It will take much, much worse economic, financial, and political conditions to get these investors back into the market.

Q. Silver has not managed to catch up with the gains in gold. Is it likely to stick more to its profile as an industrial metal or an alternative metal?

A. Silver’s role as a financial asset will outshine its role as an industrial metal. Silver prices will play catch-up with gold on a short-term basis. Its prices are already rising strongly. However, that probably is not sustainable. We expect gold prices to outperform silver’s over the next several years, even as silver rises sharply.  End

US$1 = 72.12 rupees

Edited by Mainak Moitra

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