Jeffrey Christian: “Large Institutional Investors Are Not Yet Convinced That Silver Has Stopped Falling”

During a time of complete market disinterest in silver and silver mining companies, Jeffrey Christian, founder and managing partner of the CPM Group was kind enough to share a few comments.

Of great interest to investors during his interview, Jeffrey at one point stated that, “Large institutional and high net worth individuals…seem to be disgorging maybe 40 or 50 million ounces of silver in thousand-ounce bars this year…because they’re not convinced that the price has stopped falling yet.”

Here is Jeffrey Christian’s full interview commentary with Bull Market Thinking’s Tekoa Da Silva:

Tekoa Da Silva: Jeffrey I’d to ask you about silver, the market, the fundamentals, and then also the material you plan on presenting at the Silver Summit, which from what I understand, should capture a lot of attention. To start out with, what are your thoughts as you look at this depressed market in silver?

Jeffrey Christian: Well, on the one hand, our view has been that the silver price has probably bottomed out around current levels and that still is our view. Looking at the silver market right now on a short term basis, we’re concerned that it does have the capacity to spike down again, possibly down to around $19.

Frankly over the next couple of years, we think it could be a little bit softer but we think that most of the decline that we’ve seen in silver prices since 2011 is in the market and what we’re looking for is basically sort of a consolidation of silver prices, above $16, $17 an ounce over the next couple of years and then prices probably will move higher after that.

TD: Jeffrey, what are you hearing on an anecdotal basis from some of the institutions and large corporations you deal with? A few money managers and advisers in the space are indicating that silver is now at the margin where these mining companies, they’re at breakeven level where if it goes lower, the whole industry will be losing money on their production.

JC: Well, there are some silver companies that are really in bad shape right now. They are marginally lower. The average cash cost last year and that’s just the cash cost was about $10 oz. and if you look at the cost curve which we produced, 85% of the silver that was being mined was being mined at a cash cost of $15 oz.  or less and 75% probably $12, $12.5 oz. or less.

So, even when you add in the overhead and come up with a total cost, there is a tremendous amount of silver production that still is profitable. But there is some marginal amount that is very much at risk at prices even around $20, $21, $22 oz.

That is one of the factors that we think will support silver prices from falling too much lower over the next couple of years.

TD: Would that support come from essentially companies curtailing additional production because they say, “Well hey, we can’t make money here. We’re just going to continue to shut down mines and development,” and so forth?

JC: Well, I think there’s a lot of silver mine production that’s under development, new capacity that’s slated to come on stream and what you’re going to see and what you’re already seeing is that some of those expansions will not come along or will be scaled back and some of the older, more expensive properties that have been reopened over the last few years probably will close.

I don’t have the figures for silver but I know in the gold market if you look at the amount of new capacity slated to come on stream over the next say three or four years, it’s half of what it was at the beginning of 2013 because the producers have slashed back their development plans and programs because the price has fallen from $1700 oz. at the start of the year to around $1300 oz.  today.

So you are seeing a similar situation in silver but let me just say frankly, you have a much more dynamic decline in scrap recovery in silver than you’re seeing in the mine production and scrap is a major portion of supply and you’ve seen about a 20% decline in secondary recovery of silver on a global basis this year because of the lower prices from scrap.

TD: Would you expect that number to increase if and when the price of silver increases?

JC: Well, if the price of silver increases, that’s one of the factors but scrap is driven by a number of factors. One is the price of silver. If the price is high, people will recover more from old jewelry and decorative items but another factor is economic distress.

So you saw a big increase after 2007, 2008 in the amount of gold or silver being recovered from scrap and part of it was because of the higher silver prices but part of it was because of the economic recession. People were selling their jewelry and their decorative items in order to raise cash.

TD: A couple of years ago, 2010, 2011, I’m sure your phone was probably ringing off the hook with people wanting to participate and come to you for advice on the silver market.

Are you seeing any long term holders showing interest here, maybe from the institutional community and in terms of these lower prices on silver?

JC: We keep telling people that we think it’s a good time to be buying long term silver but I think one of the things that you’re seeing in the silver market this year is you’ve seen very strong increases in the silver coin purchases in the United States and you’ve seen modest increases in silver ETF purchases but you’ve seen a massive amount of silver sold by investors in the bullion market. These are large institutional and high net worth individuals and they seem to be disgorging maybe 40 or 50 million ounces of silver in thousand-ounce bars this year and that’s why the price of silver has fallen sharply as it has.

It’s very worrisome and one of the things that we’re seeing is reluctance on the part of those types of large institutional investors to reenter the silver market simply because they’re not convinced that the price has stopped falling yet.

TD: Have you ever seen a period like this Jeffrey over maybe the past 10 or 15 years, where there has been that strong of a disinterest in the institutional community?

JC: Yes, I suffer from the fact that I started following these markets in the 1970s and we went through a period from say 1985, 1986 until 2005. We went through about a 20-year period where institutional investors did not want to buy silver and high net worth individuals did not want to buy silver and it was a really tough time to say to these people, “Look, the price of silver is $3.5…this is a screaming buy”.

We did have Berkshire Hathaway buy 129 million ounces of silver in 1997 into 1998 and that was at prices below $5 oz. But even as Berkshire Hathaway was buying all that silver, other investors were selling even more silver.

So in that year alone, investors on a gross basis were estimated to have sold something on the order of like 400-500 million ounces of silver. It’s just an incredible amount of metal.

So even as Berkshire Hathaway was saying, “This looks like a good place to buy below $5 oz.  an ounce,” other people were saying, “Oh my god, the price used to be $50 oz. and now it’s $5 oz.,” and they were just dumping this stuff hand over fist.

TD: Jeffery, as you mentioned, it seems like the $16 oz. to $19 oz. area might – I guess over the next year or two be some sort of longer term bottom in your opinion?

JC: That’s what we’re thinking. It’s going to be heavily dependent on what investors are doing. First off, we think that these large investors who have been selling the bullion probably will stop selling as much bullion as they have been.

In addition to which, we think the smaller investors who have been buying the silver eagle coins and to some extent maple leaf coins and ETFs, that they will continue to buy and we think that the economic environment is going to remain pretty negative for most people in the world. So that with low growth, high unemployment, volatile currency markets and a lot of uncertainty about what’s going to happen financially and economically, we think investors will continue to buy silver and that will keep the price above $16 oz.

If the economy turns out to be better than we expect both in the United States and on a global basis and if investors decide they don’t need to keep buying silver at the level they have been buying, then the price of silver would have to fall lower. We don’t think that’s going to happen though.

TD: Now Jeffrey, I want to ask you here. You are going to be presenting a speech at the Silver Summit, which is taking place from October 24^th and 25^th. From what I understand, you have some pretty exciting material that you’re going to share there and I’m wondering if you can provide a comment as to what it might be?

JC: Well, I have spoken at I think probably eight of the ten Silver Summits’ and I really enjoy it. I go out of my way to attend it and I really enjoy meeting the audience and everything.

At the Silver Summit over the last several years, CPM Group is the company that stands up and disproves all of the lies and misrepresentations that the gold and silver conspiracy people throw out there and GATA has challenged us in the past to refute their six points they say are evidenced. We have done that methodically and factually and shown the extent to which they misrepresent what people have said and sometimes it’s just an outright lie.

So this year I’m going to be talking about the outlook for silver and the outlook for the global and US economies but I’ll also throw in a few things about some of the misrepresentations in the silver market that we’ve been seeing. So it should be pretty interesting.

Of course I will be talking about the fact that last month in September, the CFTC announced that it was closing its investigation of the silver market because it did not find any evidence to bring any enforcement action against anybody from trying to manipulate the silver market. So I will be talking about that and other misrepresentations in the market.

TD: Alright well Jeffrey, is there anything else on silver right now that you think we may have missed?

JC: I think that’s pretty much it. I mean right now, I guess my major concern is the price of silver is trading around – $21, $21.50 oz. and we’re concerned that the price could move down between now and next Thursday. But generally speaking, I will probably look at that as a buying opportunity.

TD: As a final question--where can our people go to follow your regular work and find out more about you?

JC: Our website is CPMGroup.com and people can go there. There is a section on our website called Our Market Views and there are any number of reports and speeches and presentations that we’ve made that people can download for free. They can also read about our silver, gold and platinum yearbooks and they can order books at our website as well as special reports and learn about some of our consulting services that we provide.

TD: Jeffrey Christian, founder and managing partner of the CPM Group, thank you so much for sharing your comments with us.

JC: My pleasure.