This year has now kicked off with a series of bank failures in the US. Two of them (Silicon Valley Bank and Signature Bank) are the 2nd and 3rd largest in US history and Silicon Valley Bank was the largest since the 2008 financial crisis. Right as all this was happening, gold and silver saw a massive price surge. Jeff Christian, managing partner at CPM Group, has long forecasted a major bull run in precious metals to take place in the 2023-2025 time period as financial, economic, and geopolitical troubles continue to worsen.
Here's what he had to say in a recent interview on FS Insider (see Jeff Christian on Bank Troubles and Next Major Run in Precious Metals for audio).
Christian's 2023-2025 Prediction
Jeff Christian, one of the most accurate and data-driven precious metals experts we speak with on Financial Sense Newshour, has long predicted an increase in banking and financial market instability between 2023 and 2025, along with a big bullish move for gold and silver over that time. Recent events, such as the bank failures and current spike in metals, are the beginning signs of this new bull market in gold and silver, according to Christian. He also believes that these banking events are symptomatic of broader problems in the financial system, which have built up over the last 15 years.
In terms of precious metals, Christian believes that investors are increasingly turning to gold and silver as a safe haven investment. He cites a report from January that showed that gold and silver outperformed all other asset classes from 2022 to 2023, except for T-bills. He suggests that this trend is a reflection of broader market concerns about economic stability and investors seeking alternative investments.
"If you look at the nine asset classes and you compare them to gold and silver, the top performer from the start of 2022 to 2023 was T-bills at 4.4% percent. Silver was at 3%. Gold was basically flat... and then everything else, all the stocks and bonds and real estate were -11% to -22%. We weren't alone in seeing this in the beginning of January and what you saw was institutional investors and mainstream investors, retail investors, family offices saying, well, if I had had some money in gold and silver last year, I would have done much better than I did."
Are Central Banks Rushing into Gold?
Regarding central banks, Christian addressed some misconceptions, saying that there is not a broad rush into gold except among Islamic states. He also expects that the next big bull market in precious metals over the 2023 to 2025 period will not be necessarily related to central banks, but from a big pickup in investment demand from global investors.
"If you look, there were only eight central banks out of one hundred and eighty or so that were buying significant amounts of gold. Six of them were Islamic government banks. The seventh was India, which has a minority Muslim population that has a much larger footprint in the Indian gold market. And the eighth was China. So there's not a broad rush into gold except among Islamic states... The idea that central banks are racing into gold is wrong. The idea that central banks are racing out of the dollar is wrong. Central bank holdings of foreign exchange still represent about 58 to 60 percent of the foreign exchange holdings of central banks overall. It's been stable, relatively stable for several decades. They may try to diversify their portfolio, but the reality is that the percentage of their foreign exchange that they have in dollars is relatively stable. So they're not racing out of the dollar as a group. They're not racing into gold as a group. Something's going on in the Islamic world that someone should be paying attention to because Islamic governments are saying, we should be buying gold."
Investment Demand Is Key
The main impetus for the next big bull market in precious metals is expected to be driven by investment demand, specifically from private sector investors. In 2018 and 2019, private sector investment demand for gold was 17-18 million ounces, but during the pandemic and lockdowns in 2020, it jumped to 40 million ounces. In 2021 and 2022, it dipped to around 27 million ounces, but it is expected to rise again to around 32-35 million ounces per year by 2024-2025. This increase in demand is expected to be driven by a range of economic, financial, fiscal, and monetary issues that create a general sense of unease among investors.
"I give these talks and I talk about [where we see things going]. When the economy gets really nasty and when the fiscal policies get really difficult and when international politics get much worse than they are today, we'll see higher gold prices. And the audience just looks at me saying, this isn't bad already? And my answer is no, this is not. This is bad, but it's going to get worse. And that's when you'll see investors say, I've got to move more money into gold and silver."
Solar Boom to Drive Increasing Demand for Silver
Jeff says that continual growth in the use of solar power and electrical vehicles as well will be supportive for the demand for silver.
"We're going to go from 120 million ounces last year, 130 million ounces this year, to around 180 to 200 million ounces by 2030. That's going to be very significant. It's going to be one of the major uses of silver at that time. You'll also be seeing silver growth in the automotive industry, which is, I think, using about 80 million ounces of silver right now. And that's mostly in cars that are burning petroleum. They use about an ounce per vehicle. Electric vehicles use about one and a half to two ounces. So you're going to see growth in silver use in the electronics in vehicles. And you're going to see silver growth in other electrical and electronic applications over the next several years. But solar is definitely a very powerful factor."
Overall, Jeff Christian's analysis suggests that while recent events in the financial markets and the spike in precious metal prices are cause for concern, they do not necessarily indicate an imminent financial crisis or recession. Rather, they are signs of broader systemic problems in the financial markets that have been building up over the last decade. Investors seeking to hedge against financial market instability and economic uncertainty over the next couple years should consider accumulating precious metal assets, particularly as investment demand is expected to increase over the 2023-2025 period, in alignment with his forecast the past couple years.
The following was just a brief portion of the material covered in our recent conversation with Jeff Christian. To listen to this full audio interview, see Jeff Christian on Bank Troubles and Next Major Run in Precious Metals or, if you’re not already a subscriber to our FS Insider podcast, click here to subscribe.
Also, don’t forget to follow more of Jeff Christian's work and sign up for 2023 Gold Yearbook by going to www.cpmgroup.com.