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Gold Prices Bottoming, "Long-Term Buy": CPM's Christian

Gold and silver "have paid their dues". Whereas stocks are very high, and bonds are suicidal...
JEFFREY CHRISTIAN is managing director of precious metals and commodity research consultancy, the CPM Group in New York.
Here he talks to Hard Assets Investor about his 2014 outlook for gold and silver prices, plus central-bank demand
Hard Assets Investor: Last year was rough and rocky for the precious metals, for all the metals groups in fact. What do you see this year, in 2014?
Jeffrey Christian: Well, in 2013, we were telling people to be short. So we were kind of happy campers last year. And what we're telling people now is we think 2014 is going to be the year where we see the prices bottom out. Not necessarily run away to the upside. But we expect that, by the end of the year, gold prices and silver and platinum and palladium will all be higher than they are now, and that gold equities also will be a lot stronger.
HAI: So is the bottom fundamentally, in this mid-$1100-1200 price range in gold?
Jeffrey Christian: We think the bottom is probably around $1180, which is what we saw in late June, and then we saw it again in December. And we think it'll be tested again.
There are clearly a lot of people out there who think it's going to break with a spike down to $1100 or maybe even $1000. But we've had two tests. And every time you see the price down that low, there's a lot of demand that's coming in. So I wouldn't be surprised to see gold prices hold at $1180 now.
HAI: Looking at the charts, that $850 print in gold in 1980 lasted as the all-time high all the way to 2007. Isn't there a chance it would go back down there again, and that $850 acts as the new support?
Jeffrey Christian: Technically, you could say that could be a support level. But I think there's a lot more fundamental support, much higher, in terms of investors who don't look at price charts, but look at the overall economy. And I think you're seeing is a lot of people are still interested in gold.
If you look at the numbers, last year investors bought nearly 30 million ounces of gold. Now that was off from about 40 million ounces of gold in 2011 and 2012. So about 25% reduction in the amount of gold that investors were buying on a net basis. But that's 30 million ounces of gold investment. That's an enormous amount of gold for investors to buy. And a lot of those guys were buying expressly because the price fell from $1680 at the beginning down to $1180, $1200, $1280.
HAI: What category of investors? Would that be individual investors? Institutions, more or less, have pulled back.
Jeffrey Christian: Well, on the investor side, we divide it up into different areas. And there are some institutions and some individuals who have bailed. But there are also some institutions that either had gotten out, taken their profits, in some cases went short, and now they're going long again. And there are a lot of family offices and individuals who were buying gold.
So I don't think it divides down institution versus individual. What it divides down is that there are shorter-term opportunistic investors and momentum traders who were buying in 2007 to 2011. And they were selling in 2011 to 2013. They're out of the market now. They did their buying, they did their selling. They're gone.
And you have other investors, institutions as well as individuals, who are longer-term investors, who look at the market, and they say, from a long-term perspective, none of the problems that caused 2008 have been fixed. Some of them are worse. There's 100 percent chance that we'll have another economic crisis. It's just a matter of timing. So, from a longer-term perspective, I want to buy.
Within that group, you find two different groups. One is, I'm not a genius, I'm just going to buy gold. And the other group is more opportunistic. And they've been waiting to see how low the price of gold goes. So you've seen a lot of investors who want to buy gold on a long-term basis, but they're waiting to see the gold price stop falling and start rising.
HAI: What about central banks?
Jeffrey Christian: Central banks, by and large, fall into that same category. There's been a handful of central banks that have been large significant buyers of gold since 2008-2009. They pulled back sharply – China, Russia, Kazakhstan, Venezuela, the Philippines, a couple other countries. And they've pulled back in 2013 from buying, as the price fell. They haven't lost an interest in adding gold to their reserves. What they're doing is they're waiting to see how low the gold price falls before they start buying again.
HAI: But won't central banks wait until the price gets back to $1900 per ounce? They make great contrarian indicators.
Jeffrey Christian: The Chinese central bank, all of the gold they bought, they bought below $1000. So they're still, what, $300 to the good, $200 to the good.
HAI: We can say for sure that market sentiment and psychology has definitely flipped around from wild bullishness and optimism. There's clearly been just a chill on the outlook. And that's the time you want to buy, right?
Jeffrey Christian: I'm very proud of the fact that in January 2012 we issued a sell recommendation at $1800 gold. And the consensus was, universally, that it was going over $2000 to $2400 or $3000. I'm very proud of the fact that we got that right. And now, we're saying we think that the low is in. This is a good place for long-term investors to buy. And universally, on the Street, people are talking about $1000 gold.
I have absolutely no problem running contrary to them. Because those guys, they come up with their research by drawing a line on the chart. Prices are falling; therefore, I'm bearish. Prices are rising; therefore, I'm bullish. They don't look at the fundamentals. They have no clue what's going on in the mining sector, what's going on in fabrication demand, let alone investment demand of central banks.
HAI: Let's talk about silver, which also got hit pretty hard last year. Same sort of scenario there – a bottoming process?
Jeffrey Christian: Bottoming process, but we're probably more bearish on silver. We think there's a lot of metal hanging over that market. And investors may be a little bit harder to come back into silver. So we think that the silver price has reached its bottom or is close to its bottom. But we don't necessarily see it rising for the bulk of 2014. Maybe '15 or '16 before we start seeing that price rise.
HAI: So long-term, investors still should have a positive outlook, both metals?
Jeffrey Christian: I think so. You don't want to put all your money into gold and silver. But if you look at it, the stock market is very high and very top-heavy. The bond market is suicidal to be long. And gold and silver, they've paid their dues. The prices are way off from their 2011 peaks. They probably represent good long-term buys for a portion of your portfolio. is a research-oriented website devoted to sharing ideas about investing in the natural resources sector. Published by Van Eck Associates Corporation, the site offers an educational resource for both individual and institutional investors interested in learning more about commodity equities, commodity futures, and gold – the three major components of the hard assets marketplace.

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