Gold And Silver Hit New Highs—Here’s What Eventually Stops The Rally
Gold and silver prices are breaking all-time highs, but not for the reasons many investors believe.
In this episode, Jeffrey Christian of CPM Group breaks down what’s actually driving precious metals, why extreme price targets keep failing, and how supply, recycling, and investor behavior eventually cap rallies.
If you’re relying on headlines, shortages, or “silver squeeze” narratives, this conversation may challenge some core assumptions.
Follow Monetary Metals on X: @Monetary_Metals
Follow CPM Group on X: @CPMGroupLLC
CPM Group
Transcript
Monetary Metals:
Welcome back to the Gold Exchange podcast. I’m joined by our good friend Jeffrey Christian. Jeffrey is the managing partner of CPM Group, a commodities research and advisory firm specializing in precious metals, commodities, and financial markets. CPM Group has a reputation for being one of the most data-driven, disciplined voices in the metal space. They’re not paid to be bullish, and they’re not paid to be bearish. They’re simply paid to get it right. Jeffrey, welcome back to the show.
Jeffrey Christian:
Thanks. Thanks for having me back. It’s great to see you again, Ben.
Monetary Metals:
Jeffrey, it has been a wild time, especially in the gold and silver markets. And when I hear wild time, the first person I want to talk to is Jeffrey Christian. So Jeffrey, a lot of people are asking, have gold and silver prices peaked?
Is this it? Or is there more upside to the metals? What does Jeffrey Christian think?
Jeffrey Christian:
No and yes. Our expectation is that on a longer term basis, gold and silver prices will rise further. On a short term basis, you are seeing a spike in prices, and it’s not unusual and it’s not unexpected. I mean, a CPM group was not alone in expecting stronger prices in the first quarter of this year.
There are political and economic issues that are driving investors into it. Domestic political issues in the United States, Japan, India, and other countries. International issues, obviously, everything from from Greenland to Cuba to Canada to now Panama is back on the docket for US invasion.
So there are a lot of other issues. Davos is going on the World Economic Forum. We had Macron and Carny being very straightforward. The EU today has suspended its trade talks with the United States because of the US threats to Europe and to NATO and Greenland. There’s a tremendous number of problems there. And then there’s the economic issues and the social issues and the financial issues.
So there’s a tremendous amount of stuff that’s going on that’s driving investors to move into gold and silver. In addition to that, there’s some seasonality because the jewelry and electronics industry tend to buy more gold and silver as well as other metals.
I will say a couple of other points. One is that it’s not just gold and silver. And I know a lot of silver people are saying, oh, this is silver and this is silver-driven. But if you look at it, it’s gold, it’s silver, it’s platinum, platinum, it’s copper, it’s aluminum. This is a much broader issue. Obviously, there are some specific things related to gold and to silver, but it’s a much broader push.
And if you look at it, it’s really investment demand. And the other point I would make before we go, I’ll let you ask the follow It’s a tough question. Is that what we’re seeing in the first three weeks of this year is what we saw in the first eight months of this year, of last year.
And that is that there are now a lot of investors who are taking the opportunity to at least sell silver. They’re not so much selling their gold, but there are a lot of investors who bought high in 2021 and bought high in 2011 who have been selling. And some of that selling kept prices down for silver 2022 through August of 2025. Then they went away.
They’re back as of December 31st. So if you look at silver ETFs, for example, 203 million ounces of silver net additions to silver ETFs last year, 37 million ounces of it in December alone. 19 % of newly refined silver supply, the equivalent, went into ETFs last year. In the first two weeks of this year, they sold 15 million ounces. So there’s been some profit taking, and that tells you that you’ve got these short term momentum traders, not the traditional gold and silver investors, but shorter term people jumping into ETFs and jumping out. The other thing which we saw in the summer of last year, and we’re seeing again this year, is physical sales by investors.
So you have coin dealers on the retail and wholesale level who are saying, I have so many people coming in and selling me a generic silver that I don’t have enough cash on hand, and my bank is a little upset. I don’t have buyers so much, so I can’t buy from this guy and sell to that guy. I We have to sell it back to a refiner, which has to melt it down and cast it in a thousand ounce good delivery bars.
So the refineries are now backed up again as they were last summer. And the refineries are saying, we’re not taking what They call junk silver, 50 % silver, 70 % silver, 90 % silver, or silver bearing scrap, either from electronics or other industrial applications or fabricators or old jewelry. So the refineries are backed up with that sales.
Those are two data points that say maybe we are at a short term peak because people are taking profits. But on a long term basis, we look at the fundamental drivers, which are really economic and macroeconomic and political. And those things don’t show any sign of resolving anytime soon. Ergo, we expect gold and silver prices to continue rising the way they have since 2001 in the case of gold and 2004, 2005 in the case of silver.
Monetary Metals:
Jeffrey, you’ve argued something very interesting, which is that because the way mine supply works or the economics behind mine supply, as well as secondary supply in things like silver, there’s fabrication demand, and of course, investment demand. Silver prices can’t stay above $50 for an extended period of time. Can you walk through that logic for our investors to see, wow, silver prices are at $90, maybe $94, or going towards $100. But I also like Jeffrey Christian, and he’s telling me, wait a minute, $50 is this area where silver can’t stay for more than an extended period of time. So walk us through that logic.
Jeffrey Christian:
Silver prices at $90 are similar to tulip bulbs in the 16th century. If you look, and it’s not a theory, it’s basic economics. Let’s look at mine production. There’s something like 19 billion ounces of minable reserves that have been delineated that are at deposits, many of which about five.
We have a list of deposits that are under exploration or pre-development or development that have annual mining capacity of about 550 million ounces. So enough to more than 50 % increase in annual mine production over the next several years. And And a lot of those projects and prospects are properties that can profitably mine at $10 to $20 an ounce.
Anything over 50, You’re going to see a lot of mine production coming in.
Now, that mine production, some of that stuff is going to take 20 years. But that 550 million ounces that I mentioned, that stuff that’s been identified, that’s in the process of moving to production, it will come on stream over the next 5 to 10 years. You have 19 billion ounces of minable reserves. You have even more in non-delineated reserve base and resources. There’s a lot of metal that can be mined.
There’s a lot of metal that will be mined at copper, lead, zinc, and gold mines as byproduct. That will come out, and it will be profitable if prices were to stay above $40 an ounce, right? Because the average cost of primary production at a lot of these properties is $10 to $20. And then 80 % of the stuff is byproduct. So the cost, depending on how you account for it at the mining company level, you could argue that the cost is $2 an ounce because you’ve recovered your primary metals, you’ve recovered any byproducts like gold.
If you look at one company that we We know that we work with for decades, it’s a copper mine. The copper pays for itself, pays for everything. But it also has several hundred thousand ounces of gold that it produces every year, which also It has a place for everything. And then it has several million ounces of silver that it produces. And it sells that in tankhouse slimes after the copper has been taken out and sold and after the gold is taken out and sold. So it’s like, well, What’s the cost of production for that silver?
And some people will argue that you should attribute it across all of the production costs. But that company says, no, it’s junk to us. It’s really it’s garbage. It’s tank house slimes. Actually, there are long discussions over decades about this is not waste. The EPA and other regulators wanted to call this stuff hazardous waste. And the precious metals refining industry, and we worked with them, argued repeatedly around the world, this is not waste. No one throws this stuff away. This isn’t garbage.
Anyway, so that’s just mine production. Then you have scrap. Scrap has even lower cost. There’s no capital there. And as you use more silver, there’s more silver that can be recovered. And in many parts of the world, there are now end of life of environmental regulations for recycling old electronics and other precious metals bearing stuff. Plus, it’s really profitable. It’s really profitable to recover gold and silver from scrap. And once you are a scrap refiner and you spent the capital to build a scrap recycling plant, you’re not going to shut it down because the price falls. So they have lower costs and they have much less… They have much greater tolerance for lower prices.
And the flow of scrap is much more rapid. As I said, you’ve got refineries now backed up around the world because there’s so much scrapped silver coming in. So that’s an immediate response to $90 silver, whereas mining takes years. Then you have fabricators. We’ve had two of the largest solar power panel manufacturers in the world announced that they’re shifting technologies because there’s been some technological developments they’ve been working on for several years to move from silver to copper. And at $30 silver or $28 silver, it didn’t make sense.
But now at $100 silver, it’s done. So one of them said in January, just a couple of weeks ago, we’re going to shift to copper. We’re going to stop using silver entirely by the second quarter. There’s a talk in some circles about using silver-bearing lithium-ion batteries, solid state batteries that use silver. And there are people who are all bullish about silver because of that.
But that’s a state. That’s a technology. Silver solid state batteries, lithium-ion batteries, is a technology where you have to say, okay, we have 200% capacity of lithium-ion battery manufacturing capacity in a global. We have twice as much capacity that’s been built out over the last decade for lithium-ion batteries, wet lithium-ion batteries.
To move to solid state, you got to close those factories and build new ones. Meanwhile, there’s some people, I think it’s at MIT, who have come up with a way to have the benefits, which are to reduce the fire chance with wet technologies using the installed manufacturing capacity.
And then you start looking at the economics of using silver in these batteries and you say, okay, if X electric vehicles are manufactured over the next 20 years. They’re going to be using 1. 6 billion ounces of silver. That’s uneconomical. It’s not going to happen, right? And Samsung, which is doing this, says, no, these are high-end, high, very expensive electric vehicles.
And most of what Samson is doing is looking at these little button batteries for handheld electronics as opposed to electric vehicles. Because, quite frankly, the economics of making those smaller batteries is much greater than making the big ones. It’s much more profitable. So there’s a fourth part of the market, which I could do. So you got mine production, you got secondary supply, you’ve got the two supply sites, you got fabrication demand, and then you have investment demand. I’m not selling any of my silver.
My average acquisition price is less than $10 an ounce, which means I haven’t bought silver in a long, long time. But I do buy futures options ETFs to take advantage of other things. I’m not going to sell that silver. Most people who own silver, and there are a couple of billion ounces held by investors worldwide, most people who own that are not going to sell it, but some will, and some are. And that helps put a cap on the silver price, too.
So the longer that silver stays at prices where it makes sense to mine more, it makes sense to recycle more, it makes sense to use less in fabricated products, and it makes sense to take profits if you’re an investor, the longer it stays up there, the greater the probability that the price will come down.
And that’s why we say, look, the price of silver, the price of anything can spike to anything. But staying there is another story. So we saw in 1979, the price went from Silver run from $5 to $50. And Two days later or a month later, it was $35. That month that it hit $50 for five minutes, the average price was like $35.
And for the full year, 1980, it was $20. 2011, Given the price spiked to $50, and it stayed up there for about 20 minutes. And within five days, it was $32 an ounce. And then it fell to $15 within five years. So that’s the economics. It’s not theories, it’s economic realities. What does it cost to produce an ounce of silver from mines or from scrap? And what does it cost to use it? And what does that do to the price of my the price of my products. At what point do people stop buying mirrors?
Monetary Metals:
Jeffrey, what I find so fascinating about gold and silver is that they have this elastic demand, meaning that if the prices do rise, all of a sudden there can be this new supply to make supply and demand equal again. And while there can be these large price spikes, generally, there’s actual real economic reality that sets in, pushing the price of gold and pushing the price of silver back to some more fundamental or real economic value when you talk about silver.
What’s the story in gold? Clearly, there’s a different story when it comes to the supply and demand of gold out there. Clearly, gold is not used as an industrial metal as much as silver. What’s the same story with gold? Clearly, gold prices have hit all time highs as well as silver. What’s the story when it comes to gold?
Jeffrey Christian:
Gold and silver are both financial assets. And if you look at the way they trade and how the prices move and the trading value, these people always talk about, oh, my God, there’s 200 times the annual supply that trades every week on a global market. We say, where do I find that ratio of physical to derivatives? You find it in the US dollar, in the Euro. You find it in currencies, you find it in the bond market. Gold and silver trade like financial assets because they are financial assets. And you have a lot of gold and silver that’s held by investors and gold central banks as financial assets.
And again, the central banks say, wow, I’m not going to sell my gold. Sovereign wealth funds will buy and sell gold. Other institutional investors will buy and sell gold. But central banks buy and hold. Pretty much, until they need it for whatever reason. But they’re financial assets. And gold, you look at it, it’s central Banks, they’re buying about eight or nine million ounces. There are people out there, the World Gold Council, which is an organization that’s paid to promote the idea that investors should invest in gold.
They have a much higher number. We’re not sure why. We think that they may be including sovereign wealth fund in with central banks, which is a big mistake because central banks are monetary authorities. They buy gold with no time horizon. Horizon, right? It’s like my silver and my gold. I’m not selling this stuff. The fact that the prices have risen this high confirms in my mind that I should have some in the glove compartment of my car, except I don’t own a car anymore.
But central banks don’t have a time horizon for their gold purchases. Sovereign wealth funds have a one to five year time horizon. They’re investors. They say, I’m going to buy gold, I’m going to buy silver. How much should I buy? And how high should the price go? We had a very large hedge fund or investment fund in the ’90s, buy a whole lot of silver, and they bought it below $5. That was their charter to their broker was, We want to buy a bunch of silver, and we want you to buy it for us, but you must buy it in a way that never drives the price over $5.
If you drive the price over Five dollars, you stand down, We don’t get our silver. You don’t get your broking fee. So they bought below Five dollars with a target of like eight to ten dollars. Price got to like twelve dollars and they Sold it. The price went to 13. And people who had laughed at them for buying silver in the mid ’90s started saying like, Ha, ha, ha, they sold early.
And the guy said, Look, I had an objective. Double my value. The price did what I thought it would. It doubled in value. I sold it. I took my profits. Could I have made more profits? Yes. Could I have lost it all if the price fell back the way it did in 1980? Absolutely. I reached my investment objective and I took my profits. That’s what an investor does. Gold is primarily an investment product. Central banks are in there, too. And then there’s a tremendous amount of jewelry that’s also used. It’s used in industrial applications, but the industrial applications are like 10, 15% of new supply.
Monetary Metals:
Jeffrey, I want to ask you specifically about the central banks. You said, Hey, central banks, they buy and hold, generally. They’re not really darting in and out of the market. They buy the gold, and they hold on to it for whatever happens in the future. An example of something that happens in the future that maybe would cause these central banks to sell gold might be their Currency weakening. It might be an economic crisis. Give me an example of what could cause these central banks to sell this gold. And of course, if they’re just buying it and holding it, what are they actually using the gold for, if not to later sell?
Jeffrey Christian:
I’ll give you a couple of examples. In the 1990s, we were running up to the creation of the Euro and the European Central Bank, and that was created in January first, 1999. And the central banks that were opting into the Euro system and the European Central Bank system, once you got into that, what part of the Master’s Accord, which was from 1989, saying, January first, we’re going to have the ECB, we’re going to have the Euro replacing all these currencies. Part of the agreement was that the central banks that were in this European central banking system had to…
They had to get the ECB’s permission to make major strategic changes to their monetary reserves, including buying or selling gold. So there was this race from 1989 to 1999 for them to do anything that they wanted to do with their monetary reserves, including gold. And a lot of them had 70, 80, 90. I think one of them had like 98 % of its monetary reserves in gold. So it’s like we got to sell this stuff before January first. And they did. During that And in that period of time, people were saying, well, we had this European currency crisis in 1992, 1993, and maybe the ECB and the Euro never comes into fruition.
Maybe this whole plan unwinds. And in that environment, the Dutch were selling, along with other central banks in Europe, were selling their gold. And somebody asked the head of the Dutch Central Bank, why are you selling your gold? And they said, well, in the post-Breton Wood period, what we use monetary reserves for are protecting our economy and protecting our currency. And when we protect our currency, we do that by buying the currency and paying for that with US dollars. So we need US dollars in our monetary reserves. The gold market is very small, and there’s a core group of banks that It had great transparency, and everybody else, it’s very opaque.
So if I am sitting here with a lot of my monetary reserves in gold, and I need to defend my currency, I have to sell the gold, get dollars, and then sell the dollars to get my currency. And everybody sees me coming because I’ve sold the gold. So if I have my money in dollars already, I can have a much greater effect. So that’s why we want dollars instead of gold. At which point, the Bundesbank head got really ticked off because he’s basically saying, Hey, I’m selling my gold because I might have to defend the Danish crônum, which suggests that you might have less than 100 % confidence that the ECB is coming along.
That’s one. The other one is Venezuela. Venezuela got into a situation with a new government that was extremely hostile to the international banking system and international governments. It had massive amounts of debt that it was renegging on. It wasn’t paying its international debt, the government bonds. So the government brought all the gold home. They didn’t want it in, mostly in London, but also in New York. They brought home to Caracas so that it couldn’t be seized or frozen.
Then they ran out of dollars, so they needed to re-export some of that gold so they could use it in swaps to generate foreign exchange. And of course, they could never repay those swaps, so then the gold was sold off. And then other gold showed up in Uganda and Dubai, which was not sold for swaps.
It was taken by the Maduro and the Chávez government people from the central bank. It wasn’t a central bank sale. It was a central bank theft. And then the government took it, government leaders took it to Uganda, melted it down so you couldn’t see that it was those bars, and then sold the recast bars in Dubai. So basically, I guess that’s two anecdotes.
But to answer your question, you use that gold when you need to support your currency or you need to support your government.
Monetary Metals:
Jeffrey, looking into your crystal ball, it’s 2026, where do you see central banks and the gold story? Do you see them purchasing more gold where they say, Hey, let’s continue to buy gold. We know the prices are high, but just in the future, we might need to bolster our currency, whether it’s against sanctions or whether it’s because our currency is collapsing against the dollar. Or do you see 2026 as the year where maybe, Hey, these currencies need to be defended and gold gets sold? What do you think is the story in 2026 when it comes to central banks and gold?
Jeffrey Christian:
I’ll tell you what we’ve been saying, and then I’ll tell you what we’re thinking that we may need to say in the very near future. What we have been saying is that you have to understand central banks don’t think in terms of how many ounces of gold should I have? They think, what percentage of my monetary reserve should I have in gold? And as the gold price rises and rises sharply, the volume of gold they purchase is significantly less than it was at a lower price.
So if you go back three years ago, central banks collectively bought about 14. 3 million ounces of gold. Last year and the year before, 2004, ’24, ’25, they were buying around 7. 8 to 8 million ounces of gold. They were actually spending more money. They were moving more of their monetary reserves into gold, but they were getting fewer ounces for it. So our estimate right now has been that central banks will buy about eight million ounces of gold. Now, with the price significant significantly higher than it was two weeks ago, they might buy less because they don’t think in terms of how many ounces do I want to buy, they think how many dollars.
However, the price of gold is significantly higher than it was three weeks ago, expressly because the United States is working really hard to destroy the postwar international systems. And you’re seeing with Macron’s speech, with Kanye’s speech, with the EU move, with the United States’ behavior, and with Putin licking his chops, you’re seeing an increased global risk.
And you’re also seeing hostility toward the US dollar.
And the dollar, by the way, has continued to be the reserve currency. It’s now at the lowest level in terms of percentage of foreign exchange reserves that central banks own. It’s like 50 some odd %. It’s the lowest level since 1994. It’s not as low as it was in the 1980s, but it has come down. So central banks are diversifying away from the dollar the same way institutional investors and private individuals are diversifying away from the dollar.
And that may accelerate given the hostile global posture that the United States government has taken. So on the one hand, we’re saying everything else being equal, maybe eight million ounces of gold this year, central banks would buy. But you’ve got these two really big forces. One is the higher gold price, less gold per dollar, but higher gold price because the US government seems hell-bent on dismantling the international postwar systems.
Monetary Metals:
Jeffrey, I want to now go into a rapid fire round. I’m going to ask you questions from all over the map. You can answer a short or as long as you want. You can answer just yes or no, true or false. But these can be from all over the map. Are you ready? Yeah. All right, first, prices are volatile in gold and silver, but generally rising because the world is volatile and generally deteriorating. Jeffrey Christian, true or false? How do you feel about that framing?
Jeffrey Christian:
True. That’s exactly what it is. And it’s funny because my life has been spent… One of my critics in the ’80s said, Jeff Christian is not a good gold analyst. He’s just really good at projecting global economic and financial trends, because that’s what you do. And yeah, if you’re going to be spending all your time looking at mine production, you’re going to miss what’s really driving the gold price.
Monetary Metals:
Next one for you. Is silver still a widow maker trade, or has the silver market structurally changed?
Jeffrey Christian:
I’m not sure what a widow maker trade is.
Monetary Metals:
That’s what that kills you, usually.
Jeffrey Christian:
Oh, okay. No. If you’re intelligent and if you don’t believe stuff, if you understand economics, as we were discussing earlier, you can make a lot of money in silver. If you are a believer and you don’t understand the silver market and you don’t understand basic economics, it will kill you.
Monetary Metals:
Jeffrey, next one for you. What’s the biggest blind spot that gold and silver investors have right now?
Jeffrey Christian:
It’s funny because a lot of times I’ll get criticism from people say, well, Jeff, what you say is radically different from what everybody else in the gold market or silver market says. And I say, no, You don’t understand. If you look at who’s buying and investing in gold and silver, 90 plus % of the gold and silver that’s bought by investors is bought by rational, intelligent people.
If you look at the demographics of who buys These gold coins in North America, it’s college-educated, professional, upper income ages 40 to 65. That’s like 90 plus % of the gold coin market in North America. The people who sit there and say, no, this thing’s going to $200 an ounce. They’re the less, they’re the fringe, they’re the 10 %, right? They get it wrong. Anybody who thinks that the price of something can go up forever and not have the supply and demand effects, they’re wrong.
Monetary Metals:
Next one for you, Jeffrey. Which actual real economic user has been hurt the most by the rise in gold prices and the rise in silver prices?
Jeffrey Christian:
Probably the fabricators. And as I said, you’ve seen now in the solar power industry, where there are a lot of fabricators who, for many years, the price of silver was three a half to five and a half dollars from 1990 to 2004. Then it rose, and in that, higher prices really hurt a lot of fabricators who didn’t have research.
Now, if you go back to the ’70s, when the silver price rose in ’73, ’74, Kodak, Agfa, and Fuji, who are three of the four biggest users of silver, they did a lot of research into what they called tea-grained technology that allowed them to slash their silver use per piece of photographic paper or roll of film.
They didn’t implement it because it wasn’t economically viable. But when the price went from $5 to $50 five years later, that tea-grained technology was ready to roll out. You’re seeing the same thing in solar panels. There are companies that have invested in the research and development work, and they know what they’re doing, and they’re making those moves. There are other companies in other industries that haven’t invested in or haven’t successfully found alternatives and ways to reduce their per unit silver use.
The price of silver was $5 an ounce for a long time. You get very comfortable that you don’t need to research an alternative. And then all of a sudden, the price is 20 times as much. You need to find a new alternative. Those are the guys who really get hurt.
Monetary Metals:
Jeffrey, I want to ask you about this secondary supply, whether it’s from the mines, which might take 5 to 10 years to really push up production. But there’s also scrap and recycling, which you mentioned, which, of course, could respond much faster. How quickly do you think this secondary supply of silver can cap this crazy bull run in silver prices?
Jeffrey Christian:
Probably within 3 to 6 months.
Monetary Metals:
A lot of people on the internet have said, Well, Ben, you got to look. Yes, it’s true that there’s a $90 price on the COMEX for silver. But if you look at the Shanghai Futures Exchange, there’s much higher silver prices. Christian, what say you?
Jeffrey Christian:
The Shanghai Futures Exchange price has a 13, I think it’s 13%, it might be 17%, VAT. It doesn’t have… There’s an import duty into China, which is, I think 17%, and then there’s a 13% VAT, which is added to the Shanghai price. The Shanghai price is less than 13 % higher than the COMEX price. So the question is, why is Shanghai prices so low? Because if you thought that the price in Shanghai should be the same as the price in New York, you would expect the Shanghai price to be at least 13 % higher, right? And the answer is no. Shanghai is well-supplied.
There’s a tremendous amount of silver, so much silver that a lot of it was being exported. And now the government’s put a restriction on the exports, just temporarily, right? And that has backed up silver in the Shanghai market. So Shanghai is actually better supply. I mean, COMEX has record volumes of silver available. It’s like a 430 million ounces of silver in COMEX registered depositories. And then there’s more silver in Canada, in Florida, in Nevada, in California, and other countries that’s outside of the capture area of COMEX. COMEX has four times as much silver as it used to have traditionally, right?
Shanghai is even more oversupplied.
Monetary Metals:
So the story that, hey, there’s something going on in the Shanghai market that’s actually bullish for silver prices, really, analysts should be asking the opposite question, why is there so much silver in Shanghai? Jeffrey, always fascinating. Next one for you. I want to ask you about gold and silver backwardation. First, can you quickly define what that is? And then tell our audience, is there backwardation happening in gold and backwardation happening in silver?
Jeffrey Christian:
A backwardation is a negative forward spread, right? In any commodity or any market, you have typically what the commodities market calls It’s a contango market, a positive spread. So if you have, silver is $92. 40 today for the March contract, and March is the nearby active contract. If you look at the, if you wait one second, I’ll actually grab the forward prices so we can talk about real stuff.
You look at March, it’s 93 $1. 50 right now. The next active is May, and it’s 94. 23. So you have a forward price that is higher than the spot price or the near buy price. And that represents the carrying costs of holding that position. It’s the interest rate, primarily plus a risk factor. And in the COMEX, you don’t have risks because it’s all cleared through the COMEX clearing house.
But in the OTC market, where you’re dealing principle to principle, you have a risk factor. So people say, well, what’s the forward price of silver? It depends on who you are. If the price of silver is $93. 50 and you go to a forward trader and you say, I want to buy silver in May or in July, the active contract months, he’s going to say, well, let me look at your creditworthiness.
And if you’re central bank, where central banks don’t buy gold or silver, if you’re a government mint, you’re going to get a really good credit rating and you’re going to have a narrower forward spread. If you’re an interbank bank, a commercial bank trading bullion, you’ll get a little higher risk factor. If you’re a small jeweler, privately owned small jeweler in some state that I won’t mention because they I mentioned, they’re going to say, you’ll be discriminatory, you’re going to pay a higher spread, right? So a backwardation is when the market is so tight in the near term.
Backwardations can occur for other various reasons. But the most common one is that there’s a short term tightness in the market that causes the silver price on a spot basis to be higher than the future price. So you can actually buy silver in the future cheaper than you can spot. And I should say, I said, active March is 93. 50. The spot price, the January contract is 92. 66. So it’s almost a dollar less than the active. That tells you there’s no tightness in the COMEX price. If there was tightness in COMEX supplies, that spot price would be higher than the March and higher than the May.
The market is telling you there There’s plenty of silver here to meet current demand. Now, some people don’t understand, and they confuse different markets. And we’re talking about Shanghai versus New York, but the reality is it’s New York This is New York, right? It’s like, yeah. COMEX is a wholesale market, probably the biggest volumes in the world, 5,000-ounce bars, got a clearing house, so there’s no You’re at risk with your trading counterpart.
People and companies around the world trade COMEX. Okay, two miles, I’m looking out the window, two miles from COMEX is a dealer. He’s trading on a spot basis, and his customers want to buy one ounce or 100 ounces. And it’s the difference between buying a ton of cocoa on the cocoa exchange and buying an eight ounce can at the grocery store.
So people will say, well, I look at the Kitco price or I look at the spot price that my coin dealer is offering me, and it’s higher than the March price you’re quoting. Well, it should be because it’s a different market. It’s a retail market. And as we say here, you never buy retail. People get confused. So obviously the silver market is in a backwardation because If I want to buy a hundred ounce bar from a coin dealer, I have to pay more per ounce than if I’m buying 5,000 ounces on the exchange.
That’s not a backwardation. A backwardation is when in the same market, you have higher spot prices. Right now, if you look at coin dealers, as I said, they’re not even buying generic silver, some of them. So you don’t have a backwardation in the coin market or in the retail market in the United States, because if you want to buy that stuff, it’s going to cost you more going forward.
Monetary Metals:
Jeffrey, next one for you in the rapid fire section. Which central bank has the most misunderstood gold policy?
Jeffrey Christian:
The US Treasury. Yeah.
Monetary Metals:
What is the major difference between the sovereign wealth funds and the central banks? And why do you think that distinction matters? Obviously, we’ve talked about time frame, right? That central banks usually have a longer time frame than these sovereign wealth funds. But what are the other distinctions that matter when it comes to sovereign wealth funds versus central banks in the gold market?
Jeffrey Christian:
Well, the single most important difference is the nature of the beast. And the time horizon of holdings reflects that. A central bank is a monetary authority. If you look at the United States Treasury, the Fed, it was created at the charter of trying to stabilize the economy. Look at employment, try to maximize employment and reduce inflation as much as possible.
And it was created in the period 1907 to 1913, when the Fed was created at the end of 1913, the US was in a recession in 60 of the 90 months, not a recession, like five recess. And we had several bank runs because the banking industry didn’t have a national bank supervising it. So these guys just created money out of whole cloth. And there would be a bank panic because all of a sudden people would say, wait a second, I got all these bank notes issued by the XYZ Bank in Ohio or in New York, and they don’t have any assets.
So, Shit, give me your assets. Here’s your thing. So most central banks are created to try to regulate the banking industry in that country and to promote economic stability. They have monetary reserves, including gold, that they use to achieve those goals.
And as I said, they don’t say, I’m going to buy this gold with the expectation of selling it when the price gets to X or within a period of time. A sovereign wealth fund is a government institutional investment. It is a government agency often controlled or run or managed by the central bank because the central bank knows what to do. They are an investment fund.
We have excess money because we’re exporting to the United States and we get all these dollars, and we pour them in there, and all of a sudden we have a trillion dollars. And what can we do with this? Well, we can use it as investments. So we worked with a central a very large central bank in the ’90s that was watching the US go from a $350 billion deficit to a $350 billion surplus.
And they said, we need to have an economy like that. But they started to create a sovereign wealth fund. They said, we have all this money on our central bank, but the central bank is not allowed to invest in factories and companies and highways in our country. But if we create a sovereign wealth fund and we transfer a trillion to the sovereign wealth fund, the sovereign wealth fund can invest in all that stuff and build out the country.
So you go through, because you’re a central bank, you go through this long process. First, you do a theoretical proof. This is why a sovereign Sovereign Wealth Fund makes sense to the country. Then you do a mechanical thing. Okay, this is how the Sovereign Wealth Fund is going to be. Frankly, it took a decade to create that Sovereign Wealth Fund, but it did.
So a Sovereign Wealth Fund is, oh, the government has excess dollars, let’s invest it. And that Sovereign Wealth Fund, it was, let’s invest it primarily within the country. Then as the money kept growing, it was like, okay, we’ll invest it in other countries, too.
So the big difference is a central bank builds monetary reserves against crises. And they don’t necessarily say, well, let me shift this and shift They will, some central banks, not all central banks, some central banks will trade the currencies back and forth. But like the US Treasury doesn’t, it does not do that. Sovereign wealth funds are investment funds. They say, I’m here to diversify, to invest and make money. So I have an investment fund. As I said, So they’ll have an investment horizon of one month, year to five years, typically.
And this is one of my portfolios. Now, like other investment funds, some of those investments will be longer term than five years. Buffett always talks about the fact that he bought Coca-Cola in the ’60s and still owns it. So if you have a good investment, you keep it. But that’s the biggest difference.
Monetary Metals:
Jeffrey, last question on the central banks. Do you ever see central banks adding silver to their reserves, or will it basically always be gold in terms of central bank monetary reserves?
Jeffrey Christian:
I think that silver is too small of a market, too illiquid of a market, too many uncertainties, and too much bad information. It’s a very asymmetrical market. There’s a lot of bad information that circulates, but it’s primarily it’s just too small. So the central banking community says it’s not liquid enough to be a monetary asset. In addition to that, that’s the primary reason. In addition to that, back in the age of conquest, England had a bi-metallic banking currency system, gold and silver.
And the European countries had a gold system. As they plundered the New World, they brought back gold and silver, and they being the Dutch, the Portuguese, and it started with, I guess, the Spanish, and then the Portuguese took over, and then the Dutch took over, and the British came in, and then everybody else got in their route, too.
And they were bringing home all this silver, which was not needed in continental Europe. But they could take the silver to England and exchange it for gold. And the Bank of England had a real problem with this surge of silver coming in. So the government of England, which was the Crown at the time, the government subsidized the creation of silverware.
The silverware industry and silver plate were all created because there was this surfeate of silver And they were saying, okay, well, we got all this silver more than we want, more than we can use. But the people in Asia who have stuff we want to buy, silk and spices and all kinds of other things, they like silver. So if you look at the data, you see more than a billion ounces of silver coming out of the Americas into Europe, going to England, and then going to India India, and China and South Korea, the Philippines, and Japan.
So a lot of that silver that’s in India and China actually came from the Americas during the colonial period. But the important thing for your question is, those central bankers who have a sense of history remember how painful it was for the Bank of England to have a bi-metallic currency system, and they don’t want to go back there.
Monetary Metals:
Okay, Jeffrey, the last rapid fire question. You have just such a fascinating take on the gold and silver markets. You’re always so sober and rational. What’s a signal that you watch that investors generally don’t, maybe beyond the price charts? What’s something that Jeffrey Christian checks that maybe others don’t?
Jeffrey Christian:
I don’t think there’s any one signal. It’s a whole bunch of things. But one of the things that I pay a lot of attention to is the flows of metal. As I said, we We got a table which we’ve supplied our clients last week that says, look at the silver ETFs. They were booming, rising sharply up until the 30th of December. And on the 31st of December, they were big net sellers.
And then in seven of the 12 business days of the first two weeks of the year, seven of the 11 days, they were big sellers, 15 million ounces. That flow, that’s one of the things. The other thing is, yeah, we do look at spreads.
We look at options pricing because options are written by bullion dealers who are big enough to have options desks, and they see a lot of flows.
And if you look at the options pricing ladders, you can see Okay, we’ve got too much. Oh, we’ve got too little. So a while back, they were giving away the upside on gold. It’s like, Okay, we’ve got too much. That’s gone. So we look at a whole variety of things, but it comes down.
The price is not necessarily the key. It’s obviously important, but it’s the flow of metal into and out of various markets.
Monetary Metals:
Jeffrey For people who want to find more Jeffrey Christian, they want to hear more from CPM Group, where can they go?
Jeffrey Christian:
I’ve never known anybody who wanted more Jeffrey Christian. Cpmgroup.com is our website, and there’s a lot of free reads and free videos there. But you can also see the services that we provide because we don’t sell precious metals. We sell precious metals, research, data, and analysis. So we charge for good stuff. We give away a lot of free information. In the early 1990s, with the advent of the Internet, we said, in the future, we will give away information and sell knowledge. Age, and that’s what we do. So I will gladly sell you a scalpel, but you probably want me to do the operation.
Monetary Metals:
Jeffrey, absolutely no one I trust more in the precious metal space. What’s a question I should be asking all future guests of the Gold Exchange podcast?
Jeffrey Christian:
What’s your track record? It’s funny because we were looking at something just recently. In 1994, I was accused of being part of a conspiracy to dupe people into buying silver.
At the same time, I was accused of being part of a conspiracy to push and and suppress silver prices. The reality is, you look at our track record, and prior to 2000, 67% of the time we were telling intermediate term investors, Don’t buy this stuff right now.
And then when those parameters that we look at changed, we said, buy, and they bought. In 1989, 1990, we said, these are the five reasons why we’re burying gold and silver. And these are the four things we’re looking to see change before it happens.
In late 1992, we sent a note out to our clients and said, okay, those five things are disappearing. These four things are appearing. There is a large central bank sale that’s going to be delivered in the first quarter of 1993. It’ll be delivered in January. And so in February, we’ll probably issue buy recommendations. And a lot of people didn’t wait till February. They just went on Well, ask people, what’s your track record?
Have you always been, Oh, the price is going to rise sharply tomorrow, and now tomorrow has finally come? Or have you had a rational, explainable view?
Monetary Metals:
Jeffrey, it’s always so fascinating getting to interview you. Jeffrey, thanks again.
Jeffrey Christian:
Ben, it’s always to be interviewed with you. You ask the right questions.
Monetary Metals:
Jeffrey, thanks so much.
Jeffrey Christian:
Take care.
