Uncertainty surrounding upcoming elections in the US, record levels of short positions on metals exchanges, and concerns over a worsening financial and economic environment may lead to a moderate move higher in the price of gold in 2016 and beyond, CPM Group’s Jeff Christian recently told Financial Sense Newshour in a lengthy podcast interview.
Though Christian is widely hated by many in the gold bug community for his steadfast arguments against "gold manipulation", as many still allege, his track-record has been far more accurate compared to other gold commentators.
Given that a large portion of trading is done by computer generated trading models following momentum, Christian now sees a record and growing number of short positions on gold and silver in the futures market that will be difficult to sustain moving forward.
“At some point those computers tell investors to lighten up and when they do, they don't leave the commodities market—they go long,” said Christian, “so we think there could be a boomerang effect on the price as this record amount of short open interest—a large portion of it—flips to the long side.”
What will be the catalyst for such an event? Christian does not think it will be a surprise bout of inflation, believing that deflationary/disinflationary pressures will persist.
However, he does think investor demand for the traditional safe haven asset will revive from its depths next year, with US elections and the drama that is likely to unfold over long-term structural policy issues playing an important factor.
Here are a few excerpts from his recent podcast interview (preview below). Subscribers can access the full audio by logging in and clicking here.
Gold setting itself up for a dramatic move
"Investors have backed away from crisis investing and there's a great deal of uncertainty and discomfort on the part of investors but it's not showing up as virulent demand for gold and silver as it had been (in years prior) and that's kept the price low and has allowed the price to move even lower in the second half of this year. Going forward, we think that that's going to continue for a while but that over the course of 2016 investors will perhaps start to revive their interest in gold and start buying a little bit more especially as the US election nears which I think will create a lot of uncertainty and concern on the part of investors. And that the gold price will move moderately higher in 2016 but be basically setting itself up for more dramatic moves beyond 2016.”
Record short interest in gold and commodities
“(There’s been) an influx of new investor money into the commodity space but it's being manifested on the short side of the market right now because a lot of these guys are technically driven or they use computer generated buy and sell signals and the computers say if you want to be active in the commodities market right now the best way to profit is to be short. At some point those computers tell those investors lighten up and when they do, they don't leave the commodities market, they go long...so we think there could be a boomerang effect on the price as this record amount of short open interest—a large portion of it—flips to the long side…”
Listen to this full interview with CPM Group’s Jeff Christian by logging in and clicking here. For a complete archive of our broadcasts and podcast interviews on finance, economics, and the market, visit our Newshour page here or iTunes page here. Subscribe to our weekly premium podcast by clicking here.