By Paul Ploumis 23 Sep 2015 Last updated at 03:42:04 GMT
CPM Group's Jeffrey Christian believes the gold prices to continue rising modestly until 2017. The upside movement in gold prices will be accelerated since then, he added.
(Kitco News) - Jeffrey Christian, managing director of CPM Group, looks for gold to rise modestly over the next two years but then start to accelerate to the upside more sharply.
He told the Denver Gold Forum Tuesday that he expects mine production to continue rising into 2017. But then output is likely to start falling, while investors and central bankers will be competing to buy the smaller amount of newly refined mine supply.
“I am going to talk a little bit about the next five years because I can be more bullish if I talk about the next five years than if I talk about the next year,” Christian said at the start of his keynote address.
The speaker said he favors owning gold “not because the world is going to collapse” but because there are “other problems out there.” However, he also cautioned against “falling prey” to excessive pessimism that sometimes has no basis. He also commented that gold has not lost its safe-haven status, although the metal does not necessarily rise every time bad news occurs in the world.
“For the next couple of years, we think that the gold price will move slightly higher,” Christian said.
The consultancy looks for mine production to continue growing into 2017 as producers bring current projects on line, but then to fall sharply. In the meantime, investors are on pace to buy only half as much gold this year as in 2011 and 2012, he continued. Central banks are likely to want to buy more gold than they have been, he added.
The combination of these factors should keep prices mostly “above where they have been” in recent months, although temporary dips to say the $1,050-an-ounce area are possible, he said.
Christian looks for gold to work its way back to the $1,320 to $1,340 area by the middle of 2017. He then looks for the rate of increase to accelerate from 2018 to 2020.
“In 2018, mine supply starts falling,” Christian said. “It’s a foregone conclusion.”
This will happen even if gold prices start rising again, since there is a long lag between when prices and producers can ramp up output.
“We think the world will get more nasty…,” Christian said. “And when they get to the market, they’ll see central banks buying. And the central banks and private investors will compete for increasingly scarce ounces of newly refined gold.”
He commented that private investors hold an estimated 1.3 billion ounces of gold, while central banks hold another billion. Still, “people who hold gold tend not to sell it,” meaning those who want to add gold to their holdings will have to rely upon newly refined gold.
“That’s why the fundamentals matter in the gold market,” Christian said.
Christian said he looks for “muddle-through” economic growth to continue in the world, although this also leaves the economy “vulnerable to shock.”
“In fact, there is a 100% certainty that there will be another recession in the United States,” he added. “The only questions are when and how big.”
Christian seemingly threw some cold water on the notion of some that there has been a seismic shift of gold holdings from Western to Eastern nations in recent years. However, Christian said, the amount of gold held in vaults in New York and Switzerland has actually increased over the last several years.
For instance, he said 158 million ounces of gold has been added to private-sector gold stocks in Switzerland since 2008. By contrast, China’s net investment demand during that period is 49 million ounces, he said.
“People bought three times as much gold and stored it in Switzerland as people bought and stored it in China,” he said. “The same is true in London. The same is true in New York. You have a massive tripling and quadrupling of depository space in all three of those jurisdictions, and those depositories are all well stocked.”
At the beginning of his presentation, Christian said the one topic on which he would not “waste time” was addressing unsubstantiated market rumors about whether Comex is going to run out of gold. “No it’s not,” he said. These rumors seem to emerge each few years ago and have been once again lately.
Courtesy: Kitco News