2022 will see silver and gold prices diverge once again, with silver falling by 2% while gold climbs in value, said Jeff Christian, managing partner of CPM Group.
Jeff Christian managing partner of the CPM group joins us now to continue our coverage of the 2022 outlook series of Kitco news. Jeff, welcome back. We're talking about gold, silver, the fed monetary policy USDA. Everything you can do with the economy today. Welcome to the show. Yeah, it's good to be back.
All right. So we're approaching the new year. Uh, let's do a recap of this year before we talk about the next year, did a gold silver, the metals and the markets. Did everything perform as you would expect in, uh, in today's economy? Well, I think gold was a little bit stronger and silver in the first quarter than we had expected.
Um, And then maybe a little bit weaker in the second half of the year than we had expected. You know, we had expected 20, 21 and 2022 to be sort of consolidation years and really that's what they were, uh, you know, pretty much in line. Expectations, I guess. Okay. So we'll be going over your outlook for the two metals.
Uh, in the later part of the interview, I want to start by talking about the fed tapering and a potential rate hike was something that was in the cards. Um, people were speculating on how many rate hikes were, uh, were, could be expected from the latest.plus. And the consensus was three. Now did Omer Quan, you think that the newest variant of COVID-19 did that throw everything off track?
I don't think it throws everything off track yet. It has the potential to throw things off with track. Uh, you know, if you go back to like, I think it was 2015 when the fed started raising interest rates and they raised interest rates a couple of times and everything went haywire and they had to back off.
And I think you're in a similar situation, right. The fed is likely to raise interest rates two or three times over the course of 20, 22. Uh, they are tapering on their bond buying program. Uh, and I think that they would stay that course, but for two things, one is COVID if COVID gets worse, uh, that obviously could cause them to slow the, their withdrawal of monetary accommodation.
And the other thing is the overall economy. And with the. Ongoing efforts of democratic politicians in the United States to prove that they really should not be in charge of the government. Uh, you know, they just can't get their act together. Uh, and the latest debit code with the bill back better. Uh, you've seen a number of major economists at banks and brokerage houses and, and independent research institutions start to downgrade their growth expectations, uh, for the United States for 2022.
Predicated on the view that that stimulus isn't going to be there and that could create a real headwind for economic, uh, recovery to continue. Um, so I think that it's a combination. It's actually two punches. One is COVID and the other one is the idea that we could see a weaker economy, either of those things could cause the fed to be more accommodating than they indicated in their statements and actions.
Earlier this month, or what is your view? I mean, obviously nobody knows where COVID is going to be out. Uh, what Cove is going to be, uh, like in two, three months time, let alone one year's time. But, uh, do you think COVID aside, the economy is to progressing at the right pace. I, the economy has been doing pretty well.
I mean, if you look at real growth, consumer spending business investment imports into the United States, these things were up very strongly, not only from 2020s, weak economic period, but also from 2019 and a lot of the supply chain problems that you have. Uh, actually reflect the fact that you've got like a 20% growth in imports in the United States from 2019 levels.
So you, you had some pretty good economic indicators, obviously inflation was rising too, and that was causing some pressures there. And you have the ongoing labor shortage issues, uh, which in a way or a supply chain issues, you know? Uh, so you had some problems there, but the economy was doing okay. And it was expected that it would continue to do okay.
In 2022, you know, our estimate in line with those of the IMF and the world bank was that you would see a reduction. Uh, in the growth rate in 2022 from 2021, but still a very strong perhaps above average growth in United States and other industrialized nations IMF is projecting lower growth in, uh, 20, 22 versus this year.
You're right. For all parts of the world advanced and, uh, emerging. Uh, like some people might read that as being a negative indicator and say, well, that's because everything's slowing down and you know, that that's bad. But actually, if you look at how far we've grown in the last year through the base effect, it's not necessarily a bad thing.
That growth is slowed down by 1.5% or whatever the case may be. It's still imposter territory. Yeah. It's yeah, it's a combination of the base effect, you know, you're, you're measuring it off of a very strong 20, 21. And it's also the fact that 2021 was very strong because 2020 was so bad. So you had very strong growth in the recovery.
Uh, in early 20, 21 and like in the United States, you're now in an expansion space. It's just a phase in that the GDP is greater than it was at the end of 2019. So you're at an expansion. So you would expect the percentage growth rate to slow down or be smaller, even as the dollar value of the growth of GDP might continue to be basically the same as it was like.
Okay, well, you and I have talked about the possibility of a recession in two or three years time. Are you still sticking to that view? We still are. You know, I mean, there are some people who were saying, look with the COVID and the. Continued political problems in the United States government and the stalemate in the Congress and administration.
You could actually see a recession emerge earlier, possibly, uh, in the second half of 2022, uh, we're sort of sticking to the guns of 2023. Uh, you know, our view when we look at 2022, is that we think that the major concerns that will be driving investors into Golden's. Our political ones and the economic ones.
We'll, we'll take a back seat. So we're looking for a relatively decent economy in 2022. Uh, and then we're still looking at a recession 20 23, 20 25 timeframe. Well, it is effective to step in and, uh, reverse this possible economic downturn before that. The federal try to avoid it, uh, because it's, you know, obviously a recession is painful and problematic and destructive of real economic value, uh, for individuals, corporations, and the overall economy.
So I think the federal do everything you can, but you know, the fed, the fed only runs monetary policy and the fiscal policy is, is really bend a dysfunction. And you can say that, you know, that's been the case. 20 years. Uh, but it continues to be the case. So it's not just Fed's monetary policy that will determine whether we avoid a recession or prolong the expansion before we hit a recession.
If you have to take into account fiscal policy. And I think fiscal policy is a much more dangerous area, uh, in terms of the risks to economics. Speaking of the fed. I've heard this from several investors. It's a prevalent view amongst a lot of people in the gold and silver space that the fed has been bluffing in the last meeting.
They indicated rate hikes three to be exact. They're not actually going to do it. That's just political posturing. And the reason is the, um, insurmountable level of debt that nation has $30 trillion close to that, uh, really cannot be. Um, you know, you can't raise interest rates on that. Unaffordable for the treasury.
What's your view? Well, offense talking about maybe 50 to 75 basis point increase in interest rates, uh, and that is not catastrophic in terms of debt servicing for the U S government. Uh, it may be more catastrophic for corporations and individuals because if the fed starts raising its fed funds rate and its its benchmark rates, uh, you could see consumer rates and.
Interest rates go a lot higher, uh, faster. And, and it could put a bigger squeeze on corporations and individuals, but, you know, I think the fed actually has more wiggle room than some of the golden silver commentators. Uh, give a credit for, and I do think that you could have a 50 to 75 basis point increase in the fed funds rate and in treasuries without having a major negative impact on the debt servicing issue.
Obviously the debt servicing issue is problematic and they have to pay attention to it, but there is scope for higher rates before you really start having. Major problems. I think, well, has the government budgeted for this higher debt servicing costs? I mean, how are we going to finance it with higher taxes with, uh, with more debt with MMT?
What's the plan here, Jeff? Well, that's the problem. And that goes back to the fiscal policy issue. It's not the monetary policies, the fiscal policy and the fiscal policy is completely caput. I mean, you know, you have. Disorganization and disagreement within the Republican party, within the democratic party in between the two parties, uh, you, you don't really have a functional, uh, group.
And so if you think about. Yeah, there's an old Soviet era joke that a Soviet child, a Russian child is asking his father, where do, uh, uh, the us have elections every four years. And the Soviets have five-year plans. And the president says is another example of the superior, mind of the Soviet, uh, Soviet people.
We remember their promises five years. They remember him for, but if you look at fiscal policy, These guys are going like month to month. They're not, you know, there's nobody with a five-year plan in the U S government. You know, at least at the top level, the lower level people at the fed at the treasury and other people, you know, they're looking at this from a long-term perspective and they're understanding the issues.
But when you get to the top level policymakers, both within the administration and within the Congress, these guys, you know, at the most, they're looking at 12. Uh, so there's no five-year plan there and there's no vision as to how you get out of this. So what you're saying is that the white house can take a page out of shaking Pink's book.
I don't know if that's wise, but yeah. A little management, a little bit of management skill would be greatly appreciated on the part of the U S government. That aside, what is that going to do? What is higher interest rates going to do for let's start with the stock markets first. Well, the first effect of increase in interest rates is that the stock market tends to weaken, uh, because you have we've already.
So here's, here's my question, Jeff, is that the market has already have they already priced that in, have investors are ready for seeing three rate hikes, suppose they do base interest rate by 75 basis points. I suspect nothing would happen because everything's been already a predetermined or pre-med.
There is a portion of the equity market and the investment community that has priced that into their models. But there's a larger portion of dollars invested in equity markets that is valuation model driven, and they may anticipate increases in interest rates, but they will not necessarily lighten up their stock portfolio until the actually.
So when you see a 25 basis point increase in interest rates, then you would have an immediate, you know, okay. Stocks have to be that much lower to be competitive with interest rates. But after that, then you have it kicked back up because you have other people saying, okay, we already knew this was. Would you characterize 20, 22 as being more of a risk on, so basically a continuation of last year, a risk on environment or more of a risk off environment given where monetary policy.
I'm not quite sure what risk on risk off means and being like, you know, we're, we're putting more money into the risk assets like stocks and cryptocurrencies, perhaps risk off being we're taking risk off the table, putting that into safe Haven assets, whatever you might characterize, safe Haven assets to be.
I, I know what the concept is, but I say, you know, if you think that stocks are risky, You know, look at the stock price, look at the stock market since 2010. Yeah. That's not a particularly whiskey thing. It's had much lower volatility for most of the last 11, 12 years than say golden silver, you know? So, um, but then the stock market is an index of 500 stocks or, you know, 30 stocks, uh, whereas gold and silver are single assets and a much smaller.
So it's not. Compared to, you know, I think that what you're going to see is more of the same in 2022, at least in the first half of the year. So the stock market will continue to be driven by a ample money supply and be a stock buybacks by corporations and increased dividend yield, uh, uh, generation.
Because I think the economy is still going to be strong. These companies will have free cash flow. They will use some of it for business investment. But a big part of it will be dividends and stock buybacks, which will keep the stock market up the same time. We think that gold prices probably are flat to slightly higher, maybe 2% higher on an annual average basis.
Next year. And silver prices might be 2% lower on an annual average basis next year. But we do think that investors will continue to be buying large amounts of. Uh, and relatively large amounts of silver, but not as much as they have in 20, 20 and 2021. Why is that? Because look, we need solver for the gratification of the economy.
The infrastructure build has called for the qualification of the economy on hyperdrive. So economies of speculating that silver, like other base metals, like copper will be much in demand for the next year and beyond. Do you not share that view? I share that view with severe reservations. You have a lot of people talking about.
Yeah, electric vehicles are going to use five times or eight times as much silver as a conventional ice engine. In reality, if you talk to the auto industry and you look at the engineers and engineering reports, the probably going to use one and a half to two times as much. So, so I look at automobiles and electronics and the electrification, and I say, this is all good for silver, but I think there's a tremendous amount of.
Overly enthusiastic bullishness and, and that has two effects first off. Um, well the main effect is that, and this is one of the reasons why we see a weaker silver. And lower investment demand for silver next year, compared to gold is there are a lot of investors who have listened to a lot of bad information and they bought silver at $28 $30 and they were expecting a hundred dollars.
And now it's 24, 20 $5. And you're seeing a lot of bearishness and a lot of, you know, there's a lot of dissatisfaction. Uh, that they were syllable sold a bill of goods. And I think one of the things that we're going to see, and I think I've talked to you about electric vehicles and going forward. I think one of the things that you're going to see in 2022 is a much closer scrutiny of what electric vehicles in the green energy revolution actually mean both for the economy and for individual metals, everything from copper and nickel down to.
Yeah. If you look at the international energy agencies, big report this year on the effect on metals, critical minerals and metals of the green energy revolution, Silver's not in there. They're not worried about silver, you know, and I think that there's going to be any number of investors. There already are a number of investors who are showing their dissatisfaction for silver, relative to gold, because they feel they've been sold a bill of goods.
Bye over promoters. And I think that that's going to continue to weigh on silver relative to gold in 2020. So you're not a quote unquote stacker, as they might say. You know, it's funny, I am a stacker. I mean, I've been stacking silver for since the eighties, you know, so, uh, but I'm a rational stacker. I understand.
And I don't ever expect to have to use it to buy milk and bread at the corner store. That's interesting because 150 years ago, And 150 years ago, you had to, if you go back to the expansion of the United States to the west, you know, you didn't have a central bank, you didn't have a central currency.
Currency bills were issued by regional banks, state bank. And, you know, it's like, so I'm in Ohio. I want to move to Kansas. Uh, I take my money out of the bank. I go to Kansas and I say, well, I've got all these bills issued by the first bank of Canton, Ohio. And the banker in Kansas says, where's that? You know?
So what you did was. Went to the bank. And you said, give me Spanish, silver coins, pieces of eight and pieces of eight where the major currency used in the Western expansion in the United States. Yeah. If you wanted to buy milk and bread, or as my wife had says, you know, we don't know how the pioneers like went across the country, uh, without like a steady flow of coffee.
Uh, but you know, if you wanted to buy stuff, you converted your money into. Yeah. When all of those people came out of Europe and came to the United States, they didn't bring Lithuanian currency. They went to the Lithuanian bank and they said, I'm moving to America. Give me silver. Well, why did that change?
Well, it changed, uh, for a variety of reasons. One was the rise of central banks and you had all of a sudden you had more stable. Yeah. The reason why we had banking panic after bank panic in the 19th century was because you didn't have a central banking system and you didn't have. Effective oversight.
You had all these state banks, you know, you had no central bank, no national bank. Uh, you had S uh, state chartered banks. The states didn't have the wherewithal to really monitor them. So there was this constant thing of, well, listen, Mr. Bell. You have to have a certain amount of gold and silver in your, your safe take back, the currencies you're issuing.
And then the bankers would slowly but surely realized no one's coming in to check their books, to see if they had it. So they would overprint, uh, notes and then the notes would bomb and everybody would come down and say, give me your gold and silver. And there wouldn't be enough gold and silver. You go into a depression and then you'd go into.
You know, and you had this boom and bust cycle, and that was true in the United States, but it was also true to a lesser than in a lot of other countries. So in the late part of the 19th century, in the early part of the 20th century, you had the rise of central banks and you had greater scrutiny and regulatory oversight of banking, and that caused those bills to be.
More trustworthy. Well, and now in the digital age, people are speculating that the end of centralization is upon us. Now we're talking about decentralized finance and how people can transact peer to peer without the need for a centralized authority, like a central bank. Do you see that being a changing.
No, I see that being a gigantic problem, and it's going to blow up and cost of people, several trillion dollars. We have a new mirror coming into the New York and he's a great guy. You know, I've admired him for decades since he was a cop. Uh, and, and now he's going to be mayor. And he's talking about using cryptocurrencies for the, uh, the, uh, New York city.
And fortunately, I also know the guy who's coming in as controller and I actually sent him the PDAC gold versus Bitcoin. Uh, debate that I participated in three years ago. And I said, look at the 14 and a half minute mark, because this is where you talk about how cryptocurrencies can blow up in people's faces and probably will at some point.
And it's going to cost people a lot of trillions of dollars and New York cities should not have cryptocurrencies in its treasury because we really can't afford it. And have they taken her advice or no, they're not in. Okay. They, they come in on January 1st. You think they will considering or consider taking your advice or I don't, I wouldn't, I wouldn't take credit for it, but I think that calmer heads will prevail.
I think the person I have greater respect for the incoming controller than I do for the incoming mirror, even though I respect the incoming mirror a lot. I think that the incoming controller is much more a. Okay, well, that's interesting. I, you and I haven't spoken about cryptocurrencies yet. Well, we'll talk about that in more detail in another episode.
So that's a good to take, get your take. I want to close on, uh, well, gold. Um, and then, uh, and then what, we'll leave it there. Central bank buying of gold. Uh, has that been, uh, have you seen recent activity pickup on that front? Well, it picked up in the second quarter. Uh, yeah. And, and it's tapered off a little bit in the second half of the.
Uh, it's a little bit clouded because of the Turkish, uh, use of gold in monetary policies. But if you look at non Turkish central bank activity, what you saw, and I think it's important for the future, because what you saw was a number of central banks. Central banks tend to be more price sensitive than private investors, and they tend to wait for lower prices.
And what we saw in the first half of the year, Well, central banks buying between say 1740 and 1840, really 1780 and 1820. Uh, so that sort of signals that central bankers as well. We're sort of looking at the gold market and saying, okay, yeah, $1,800 used to be the record price. Uh, but now it's probably a good price to buy from a long-term perspective.
Yeah. You gotta remember central bankers don't have an investment horizon the way, uh, institutional investors or private investors. They don't say, oh, you know, what's the, what's the outlook for gold for the next three to five years. They say, what's the outlook for. Going forward. And what they're basically doing is they're signaling that they think $1,800 is a cheap price for gold on a longterm basis.
And have you noticed, um, a divergence between gold silver prices this year? Well, yeah. You know, it's interesting because I think. Uh, the gold price has held up better than the silver price in the second. In the second half of this year, I think the silver price probably outperformed gold. If I, if I remember a little bit in the first half of the year, but then again, you had this dissatisfaction with the overselling of silver.
And so I think you had a weaker silver price in the second half of this year than you did gold prices. I bring that up because I I'm assuming. Are projecting this divergence to last going into next year because you're projecting gold to go up slightly in the order of maybe 2% from current. Oh, sorry.
Just, you know, a few hundred bucks from current prices and silver to go down 2%. So they're moving in different directions, according to your outlook. I'm wondering, well, you've explained that, but typically in the past we've seen gold. Uh, and so moving the same direction with silver outperforming and bull markets.
Right? So that, that doesn't seem to be the case with your analysis for 2022. Yeah. They moved broadly and in, in, in the same direction, you know, the correlation historically since gold prices were freed in 19 68, 19 70, the correlation between changes in civil prices and changing gold prices, 78%. So you have.
22% of the time. Uh, you can have divergence in the golden silver, uh, price, movement, direction and size. And so it's not that surprising. What I, I think what you're seeing is, you know, on the one hand I said, you know, some investor dissatisfaction with silver, uh, because they feel they've been lied to. Uh, but you also have a much broader base of investors globally, interested in.
So it, you know, it's not just a us market, it's a global market. And if you go to the middle east, our Southeast Asia are our Europe. You'll find a greater proclivity toward investing in gold as a safe Haven than in silver. They like silver and they use silver, but not as much as. Okay. Uh, Jeff, there's a many different, uh, other topics we can go over, but we'll be talking for an hour, so let's end it here for now.
And we'll continue in the new year. Happy holidays. And we'll speak to you. Best wishes for 2022. Yeah. And I hope to see you in Vancouver in a month or two, uh, and, uh, hope to be there. Yeah. I hope to be allowed to come to Canada. I think you will be. I think it's just a matter of, um, uh, the convenience plans, but anyway, uh, good to see you again, and thank you for watching Kik on news on David.