(Kitco News) – There are enough economic, political, and security uncertainties in the world to drive gold and silver to new heights in the next six months regardless of inflation, interest rates, or any other specific metric, according to Jeffrey Christian, Managing Partner of CPM Group.
“I want to talk about the longer-term economic view and uncertainties,” Christian said in a video report published Tuesday. “Some people say that gold prices only respond to the dollar, and if you understand the dollar and you have a strong view about the dollar's outlook, therefore you'll know what to think about gold. Other people will tell you gold only responds to inflation, and [if] inflation's rising, gold prices will rise. That's wrong, too. Other people will tell you that it's this, that, or the other thing. They're all right, and they're all wrong.”
“The reality is that gold responds to inflation, to currency market unrest, to strengths or weakness in the dollar, to economic activity in general, to political uncertainties, to national, international, and regional problems, financial market concerns,” he said. “There's a gigantic panoply […] of issues that are very important in determining whether or not investors want to buy more gold or less gold, and whether the prices rise or don't rise or decline as a result of that.”
Christian said that gold and silver prices face a wide range of uncertainties in the coming weeks, months and years. “International political ones, regional wars, Ukraine, Middle East, national political issues, economic trends, financial market stability,” he said. “There's going to be a whole range of new uncertainties over the next four weeks that could be more virulent than the ones that we've been dealing with over the last few months.”
“Over the next six months, we expect that to happen too,” he added. “And it's this combination of uncertainties that will, we think push gold prices and silver prices to high levels over the next six months, and possibly to new record levels, for silver as well as for gold.”
Christian said that these uncertainties are what really matter, more than any specific correlation, and they cut both ways. “There are good ones and bad ones, and we have different scenarios that we draw,” he said. “That said, this is our most likely economic, political, financial, gold, silver scenario for the next two months, two years, ten years.”
He shared a chart that showed positive and negative global demand for gold since 1966.
“The black bars are years in which investors bought more than 20 million ounces of gold,” he said. “You tend to see gold prices rising in those years as investors are concerned about economic and political factors. And the lighter blue bars are years in which investors bought less than 20 million ounces, and you can see that tends to coincide with flat to lower gold prices.”
“There are only three years that have red bars,” he emphasized. “There are only three years since 1966 when investors, by our estimate, were net sellers of gold on a global basis. Usually, investors somewhere are facing real problems and they're buying so that even when investors elsewhere are feeling more comfortable about the world, you'll still see some investors having issues somewhere.”
Christian said that there have always been countries and regions where the uncertainties were high enough to keep gold investment demand positive. “For decades, you'd see one or two years of global economic and political uncertainties driving investors to buy more than 20 million ounces of gold and driving the gold price up.”
Looking forward, CPM Group expects a more hostile economic and political environment than the one prior to 2000, but cautioned investors to note the light blue areas of 2013-14 and 2017-19. “Uncertainties cut both ways,” Christian said. “We have a main scenario, and that main scenario has gold prices and silver prices rising to record levels over the next six months, [or] over the next 12, 24 months, and that is predicated on hostile economic and political developments.”
But he also sees potential for good developments. “First off, we are seeing good things happening,” he said. “The economy in the United States, regardless of what you want to believe, and regardless of what you feel like when you're buying groceries, the economy is actually in much better shape than some people would have you believe. We have relatively strong employment. We have relatively strong economic output. Incomes, in general and on average, are rising more than inflation has been rising. Inflation has come down from 9% in 2021 to around 3, 3.5%. Now you are seeing a prolongation of the economic expansion.”
“People have been waiting for a recession since 2022 and it hasn't arrived yet,” Christian added. “It may arrive in the next six months, or it may not. That's one of the uncertainties driving the market. But the reality is that over the last two or three years, the economy has done much better than people think.”
CPM Group also outlined a number of positive potential scenarios, including the possibility that the U.S. government could shift to a surplus budget within a few years. “It's not in our main scenario,” he said, but it would among other things lower gold prices.
“You also could see an abrupt and positive end to the Russian invasion of Ukraine,” he suggested. “If the Ukrainian government and military are allowed to use longer distance weapons to bring the war even more home to Russia than it is right now, that could end that relatively quickly. There could be regime changes in various countries that could be positive. There are a lot of things that could happen that could be positive, that could take the gold and silver prices down, not in the next six months, maybe not even in the next 12 months or 24 months, but somewhere beyond 2026.”
Christian said that the uncertainties that are the true drivers of the precious metals markets are here to stay. “We have seen an increase in economic and political uncertainties and issues, and we're likely to continue to see that,” he concluded.
