Jeffrey Christian: Physical Demand will Drive the Silver Market
Tom welcomes Jeffrey Christian Managing Partner of the CPM Group to the show.
Jeffrey explains the role of the CPM Group and its beginnings some 35 years ago. Jeff moved from journalism to commodity trading in 1980. He explains why secrecy is essential and expected in the precious metals business and why much of it is unregulated. Much of the business has no requirements to disclose their holdings or operational details from fabrication to investment. In 1986, the CPM Group spun off from Goldman Sachs as an independent research company. They had a lot of first-hand knowledge of how the markets worked and used that to leverage their connections and experience. He says, “They are not beholden to the banks as bullion banks represent less than one percent of their business.”
He says, “We skew the table in favor of users or consumers of financial transactions.” Banks don’t necessarily like us because we compete with them by providing research and consulting to mining companies. They help companies structure agreements and negotiate with banks, but they don’t fulfill these contracts.
Interest rates and debt are major factors for growth and recessions. There are massive imbalances that have only worsened since 2008, and the pandemic has not helped. Regulatory reforms haven’t protected the financial structure from shocks. Jeffrey expects a failure in an obscure area of the debt market, which will cascade.
Stock markets used to be places where companies raised capital and provided dividends. Today, many companies are focused on buying back shares instead of investing in themselves. This looks good on the balance sheet and pads the management’s earnings, but it impoverishes the rest of the economy.
Jeff discusses the overall allocation and annual production of around one billion ounces of the silver market. The mining, refining, and fabricating processes each use hedging to mitigate price risk. There can be upwards of ten transactions during the entire supply chain before creating an end-user device containing silver.
Silver grades have been in decline for the last fifteen years. However, this is a sign of improved mining technology and refining capabilities. The increase in price over the past twenty years has allowed mines to remain profitable. We aren’t running out of reserves, but it’s more a matter of pricing.
Jeffrey says deliveries are typical on the commodity exchanges, and it’s not unusual to have large delivery months. JP Morgan regularly pulls large quantities of silver. Silver is just another commodity in terms of concentration. Concentrations are due in part to an ever-diminishing number of banks involved in commodity markets.
The Hunt Brothers took advantage of the silver market during a period of inflation and deregulation. They felt that silver would rise but did not set out to corner the market. He explains some of the mistakes they made with margins and bonds, including Nelson missing an important margin call by not being in contact with his own office.
Futures prices are closely aligned with the wholesale prices in the physical market. Jeff says, “They are very good measures of the equivalent of a thousand ounce bar.” The physical markets set the long-term price for metal. High premiums indicate high demand for bars, but price spikes usually indicate supply chain delivery issues. He says, “There is no shortage of physical metal in the markets.”
He argues that large dumps of contracts onto exchanges are done by multiple parties using similar computer software. This behavior is not isolated to silver markets.
Lastly, he explains his thoughts on JP Morgan’s fines for spoofing and gives us his predictions on where silver will head between now and this fall.
Time Stamp References:
0:00 – Introduction
0:30 – Background & CPM Group
10:00 – Derivatives
11:33 – Yearbook & Outlook
14:00 – Value Creation & Buybacks
19:00 – Silver Market
24:30 – Hedging & Lending
26:38 – Mine Silver Grades
28:34 – Reserves & Mine Life
32:57 – LBMA Error & Holdings
38:48 – Inventories & Ownership
40:17 – Comex – JP Morgan
44:14 – Short Positions & Silver
47:12 – China & Silver
50:06 – Selling 80s & 90s
53:45 – Hunt Brothers
58:47 – Overall Silver Demand
1:02:48 – Spot Vs. Physical
1:04:40 – Premiums
1:06:31 – Contract Dumping
1:12:42 – Silver Drop May 2011
1:15:19 – JP Morgan – Spoofing
1:17:45 – Spoofing Defined
1:21:24 – Squeezes & Shorts
1:23:48 – Silver Projections
1:28:45 – Fed and Rate Risks
1:30:23 – Concluding Thoughts
1:32:45 – Wrap Up
Talking Points From This Episode
- Jeffrey and CPM Groups Background
- CPM’s functions in metals markets
- Debt market imbalances and risks.
- Declining mining grades and silver supply chain.
- Futures manipulation, software algos and bullion banks.
Year Book: https://www.youtube.com/watch?v=Bo8jT0XPcbM
Open Forum Tweet: https://twitter.com/CPMGroupLLC/status/1395829832773251074
Questions Email: email@example.com
YouTube Link: https://www.youtube.com/watch?v=eoh_ya8fAFo
Jeffrey Christian is the Managing Partner of the CPM Group. He is considered one of the most knowledgeable experts on precious metals markets, commodities in general, and financial engineering, using options for hedging and investing purposes. He is the author of Commodities Rising 2006.
Jeffrey Christian has been a prominent analyst and advisor on precious metals and commodities markets since the 1970s, with work spanning precious metals, energy markets, base metals, agricultural markets, and economic analysis. The company was founded in 1986, spinning off the Commodities Research Group from Goldman, Sachs & Co and its commodities trading arm, J. Aron & Company.
He has advised many of the world’s largest corporations and institutional investors on managing their commodities price and market exposures and providing advisory services to the World Bank, United Nations, International Monetary Fund, and numerous governments.