Gold insider Jeffrey Christian joins us to separate fact from fiction on Fort Knox’s gold reserves, China’s gold holdings, central bank demand, and the debate over a global silver deficit.
Discover what investors get wrong about gold, the difference between paper and physical precious metals, and what mining and recycling mean for future supply.
Read the transcript below.
Transcript
Monetary Metals
There’s just so much bad information about gold and silver, partly because it’s a religion. I’m very comfortable having worked with the Chinese government and the People’s Bank of China since 1981. I’m very comfortable and confident that their monetary gold reserves are accurately reported on a monthly basis. That’s their monetary gold reserves. Governments will have other gold reserves and gold holdings. And the Chinese government and the Chinese Communist Party have policies which are the gold in China stays in China. Because China says, if we’re importing stuff from you, we will pay you dollars or euros or yuan, but we’re not going to pay you in gold. The gold in China stays in gold. I want you to understand, I don’t think gold’s an investment. I think it’s a religion.
Monetary Metals
Welcome back to the Gold Exchange Podcast. My name is Ben Nadelstein of Monetary Metals. I am joined by the one and only Jeffrey Christian. He’s the managing partner and founder of CPM Group. It’s one of the world’s leading commodities research and consulting firms. He has over 40 years of experience in all things precious metals. He’s joining us today to discuss gold, silver, and of course, to separate fact from fiction. Jeffrey Christian, welcome back to the show.
Jeffrey Christian
It’s good to be back and it’s good to see you, Ben.
Monetary Metals
Jeffrey, I got a great email from you saying, hey, listen, you’ve been hearing a lot of claims on the show about gold and silver and you’re thinking, hey, I want to set the record straight. I want to correct the record. And of course, help our audience learn this fact from fiction, especially when it comes to precious metals.
Has Fort Knox’s gold been audited?
Monetary Metals
So I wanted to start with one that’s kind of been in the air more recently because of President Trump and this idea of auditing Fort Knox. On one hand, we’ve heard, oh, Fort Knox has not been audited for decades. We have no idea if the gold’s even there. And then on the other hand, you have people saying, actually, no, we’ve done an audit a bunch and we know exactly what type of gold is at Fort Knox. what purity is and how much we have. So, Jeffrey Christian, let’s set the record straight. What say you about gold at Fort Knox?
Jeffrey Christian
Well, it’s not just the gold at Fort Knox. I mean, Fort Knox has about 147 million ounces of gold in it, and then there’s another 120 million ounces of other gold that the US Treasury holds. So they have about 261 million ounces of gold that the US Treasury holds. Mostly in Fort Knox, but also spread around in different other places. And you have to understand how it’s stored, and then you can understand the legitimacy of the annual audits that go on. This is almost all what they call deep storage gold. The Treasury doesn’t use this gold. It really hasn’t used it since 1971. So the gold is in 400-ounce bars. There are like 647,000 bars because they counted them a couple decades ago, around 2005 to 2008. You know, 647,000 ounces of bars takes several years to count the way the audit works. But there was a full audit back then. But the way the bars are stored is the bars are put in drums. The drums are sealed and the seals are signed, right? And there’s a bar list. There’s a bar list that says this drum number 43 in vault number 6 has these bars in it, and these are their weights and specifications.
And within Fort Knox, as in other vaults, there are depositories, there are different vaults. So within Fort Knox, there are several vaults. You fill a vault full of these drums, then you close the vault and you seal it, and the seal is signed right now. As long as those seals are not broken, no one’s gotten into that vault and no one’s gotten into those drums, right? So this was all completed by like, I think, 1986.
Monetary Metals
Okay.
Jeffrey Christian
We used gold for capital and trade settlements prior to 1971. After 1971, the government was like, what are we going to do with all this gold? And they sold some in the ’70s, but then they sealed it all up. So it’s sealed in these vaults. Now, every year KPMG comes through and says, okay, this vault is sealed and the seal hasn’t been broken and replaced since last year. Okay, so we’re pretty confident that that stuff’s in there. We don’t need to break the seal. The rule is you break the seal on the vault, you’re going to audit every bar in there, which is extremely expensive and time-consuming and such. So We don’t need to break that vault seal. It’s there. And KPMG will do an audit saying we went through all the different depositories that the U.S. Treasury has, and it’s all there. There’s no evidence of any change. That happens every year, and they post that on the U.S. Treasury’s website, the KPMG audit. Right. Then in the audits, like I, as I said, I think they probably started around 2004 and they, I think, completed in 2008. They broke the seals and they took every bar, 647,400-ounce bars.
They had the bar lists. They checked the bars against the bar lists. Okay, this bar, we see it’s here. They weighed it, they weighed every bar, and then they took representative samples for assays, and they sent those samples to an independent assay lab to assay them. Now, 400-ounce bars, 100-ounce bars, in the gold and silver markets, the pricing of a bar in the wholesale market is on the fine gold content. And the fine gold content is measured to 3 decimal places, to a thousandth of an ounce. You know, when you’re buying a gold coin or a 1-ounce round, you’re buying an ounce, and they say, yeah, it’s an ounce. Okay, but in the wholesale market, anywhere in the world, in the wholesale market, the pricing is taken out to a thousandth of an ounce. So they measured each one, and I have This is the Paul— yeah. This is actually the hearing that Ron Paul had in 2011 as he was leaving the House of Representatives. He had a hearing and they, the Treasury, brought him the audit, a list of 647,000 bars measured to the 3rd decimal point. And Several pages, like 60 pages of assay results.
And they said, here it is. And it’s interesting because this is his report. This is his committee’s report. And he says in the beginning, he says, you know, for 20 years I’ve been in the Congress and I’ve been saying that the Treasury should audit its gold. And in preparing for this hearing, after 20 years of saying this, I’ve discovered that they do audit it. Every year there’s an audit and I discovered how it’s sealed. And I found that they did this deep audit and they gave me the complete thing. So in the hearing, he said to the Treasury, you know, you guys never told me. And they said, you never asked. You spent 20 years going around the world saying we should audit the Treasury’s gold because I don’t believe it’s there. But you never asked us. And you never went to our website and searched Treasury gold audits. If you had, you could have saved yourself a lot of time.
Monetary Metals
So, Jeffrey, for a lot of people, they hear, okay, we’ve done these audits, we’ve sealed these gallon drums with, you know, gold bars in them. Obviously, if the seal isn’t broken, no one’s gotten to the drum. But even then, we’ve even broken the seals, we’ve checked all the bars, we’ve done, you know, representative assays as well. Is this the kind of most in-depth that anyone has ever audited their gold holdings at this level? Are there other countries that do a similar level of auditing, or is it because the US has so many gold holdings that this is kind of the best in the business?
Jeffrey Christian
Other central banks do audits like that. They don’t do them every year. They don’t have as much gold, you know, but most central banks know where every bar of gold that they own is. They have the bar lists. So this is not only with central banks, but with other, you know, with companies and with depositories. Well-run depositories have an annual audit and they’ll shut down for a couple days and go through a physical audit of the contents of their depository.
What China’s gold reserves really mean
Monetary Metals
Jeffrey, I want to ask you about another central bank and their gold holdings, which a lot of people say, oh, they actually have more gold holdings than they’re publicly reporting, which is of course our friends in China. People say, oh, there’s all this gold going to China, but it never leaves the country. Their reports are actually a lot more unclear of how much gold they actually have. They’re underreporting how much gold they have. So Jeffrey Christian, in your opinion, what’s the true story behind how much gold China actually has?
Jeffrey Christian
I’m very comfortable having worked with the Chinese government and the People’s Bank of China since 1981, as well as other banks. I’m very comfortable and confident that their monetary gold reserves Are accurately reported on a monthly basis. Now, that’s their monetary gold reserves. Other governments—I’ll tell you an anecdote about Russia in a second, or the Soviet Union in a second. Two anecdotes, actually. Governments will have other gold reserves and gold holdings, and the People’s Bank of China got out of the gold business ostensibly in 2001. They used to be the market maker for gold and silver within China, and as part of their. economic reforms that started in the ’80s, they extricated themselves from that position, but they still have a gold trading desk. And the Chinese government and the Chinese Communist Party have policies which are the gold in China stays in China. Now, that’s very important to understand in terms of all these rumors about BRICS trading gold and having a gold standard, because China says no. You know, if we’re importing stuff from you, we will pay you dollars or euros or yuan, you know, but we’re not going to pay you in gold.
The gold in China stays in gold. And if a private entity or another government office or company or corporation, state-owned enterprise, whatever it is, says, I have gold and I want to sell, they are free to sell it within China. If they cannot find a buyer in China, the People’s Bank of China will help them. They’ll say, you know, because we have this trading desk and their trading desk, which I met in 1981, their trading desk, it was very efficient and effective and knowledgeable, probably the best in China, right? So you can’t find another Chinese buyer for the gold you want to sell. You go to the People’s Bank of China and say, I have ounces of gold. That I want to sell, I can’t find a buyer. They will take it, they’ll put it in a separate account, not their monetary reserves, but in a separate trading account, which they’ve had and they used actively until 2001, but they kept it alive and, you know, there it’s on paper, right? They’ll buy and sell gold for other Chinese entities, private and government. Entities. So there is gold that’s held by various other government agencies, including the sovereign wealth fund, which will buy and sell gold as an investor, not as a monetary authority, but as an investor.
That’s all separate from the monetary reserves that the People’s Bank of China reports on a monthly basis. So I’m comfortable that the numbers they’re reporting represent their monetary reserves. I’m also comfortable that there are other government agencies that have gold that doesn’t get counted in there. I’ve also seen a lot of really bad math. It’s not even math, it’s arithmetic from people who don’t understand how gold trades, like through the Shanghai Gold Exchange, that leads them to misunderstand And believe that the data that you see on China is wrong. But let me stop with China for a second and tell you two anecdotes about the Soviet Union. When I took over the J. Aaron Commodities Research Department group, they had estimates the amount of gold that the Soviet government owned, and it was all state secrets back then. And we would adjust that on an annual basis based on information that we received. And in the late 1980s, I ran the Commodity Research Department at J. Aron. We were bought by Goldman Sachs. I became the head of the Commodities Research Department at Goldman Sachs. In 1986, I did a management buyout of the Commodities Research Department at Goldman Sachs and created CPM Group.
And we continued to run that data. Part of the management buyout was an agreement that we co-owned the data that we had developed for them as a work for hire as their employees. And we want to have access to all that information. So first off, we copywrote it. So it was public in the public domain. But in addition to that, when we left Goldman, we did an agreement that gave us joint ownership of the stuff that the work we had done for them in previous years. That’s important because, for example, when Goldfields Mineral Service was being disbanded by Thomson Reuters, Which owned it. A bunch of people that left that operation created Metals Focus. And Thomson Reuters said to them, we’re not giving you the right to use the Goldfields Minerals data, right? We’re more paranoid, I guess. We worked for Goldman Sachs in the 1980s, so we made sure that we co-owned it. Anyway, in the late 1970s, The People’s Bank of China joined the IMF. And when you join the IMF, you say, these are my monetary reserves. And we have 12.3 million ounces of gold in monetary reserves. In the late 1980s, the Soviet Union, as it was moving toward collapsing, joined the IMF.
And as part of that, they had to say, these are our monetary reserves. So I got a call from our trading counterparts, in the Soviet government, clients of ours. And they said, we’re joining the IMF. We’re gonna be reporting that we have monetary reserves of 12.9 million ounces of gold. And I said, okay, we have an estimate that the Soviet government owns about 67, 68 million ounces of gold. So I guess we have to change that. And they said, no, no, no, don’t change that. These are our monetary reserves. 12.9. We’re reporting monetary reserves of 12.9, more than China has. But there are other inventories of gold within the Soviet government. This was 1988, ’89. Soviet Union collapses in ’91. There’s this Commonwealth of Independent States. There are like 15 independent republics. And the government, the central bank says, okay, we have 12.9 million ounces of monetary reserves. This is your share on a pro rata basis, given the GDP of all these new republics. The republics balked. They said, wait a second, wait a second, you know. And one of them, which will remain nameless, hired CPM Group. Well, they had already used— were using CPM Group as advisors.
And they said, we understand that the Soviet government has 67 million ounces of gold. We want our pro rata share of that. And the Russian Central Bank said, we are giving you your pro rata share of the monetary reserves that we hold. If you want your share of the rest, go talk to the Red Army. Right? So those 2 anecdotes, yeah, there’s, you know, in the case of the Soviet Union, yeah, we have 67 million ounces of gold or whatever. But only 12.9 are monetary reserves back then. You know, and there’s this other stuff that’s out there. When you talk about, well, how much gold does the government own? It’s like, well, in the United States, we’re pretty confident that 261 million ounces are held by the Treasury, and there’s very little gold that’s held by other departments. The Defense Department has some gold that they lend out to their contractors on a rolling basis. So that the contractors can use it in making military ordnance for Defense Department. But there’s not a lot of other gold that the US government holds in other departments. Department of Energy may hold a little bit because of nuclear power or something like that.
But in other countries, it’s not unusual to see a sovereign wealth fund investing in gold, buying and selling, or Defense Department having a strategic stockpile. Or other things, you know? And then you get into other countries like monarchies. You know, you saw this with the Saudi Arabian government a few years ago. They added a whole bunch of gold to their monetary reserves. And people said, oh my God, the Saudis have been buying gold. And it’s like, no, this was gold that was owned by the Saud family and they transferred it to the Saudi Arabian Monetary Authority.
Monetary Metals
Yeah.
Jeffrey Christian
So it showed up, it became part of the Saudi Central Bank’s gold holdings, but it had been in Saudi Arabia for a long time, owned by the kingdom, right? China had the same thing. They had gold and silver in their trading accounts when they were national market makers. And when they got out of that business in 2001, they added the gold that was there to their central bank gold reserves, monetary reserves, and they sold off the silver.
Monetary Metals
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Why central banks don’t hold silver
Jeffrey, I want to ask you about silver. A lot of people say, well, silver’s not really a monetary metal. And one of the anecdotes or pieces of evidence that they use is central banks don’t really own or hold any silver. How true is that claim, either currently or historically?
Jeffrey Christian
It’s true. Historically, central banks would own some silver because they used it in circulating currencies. And the mints would, in the case of the United States, the central bank never owned silver, but the Treasury did because they used silver in circulating currencies. And the mint is part of the US Treasury. So you would find that kind of behavior in countries historically, but silver’s been taken out of circulating currencies, I think in every country. So that’s not so much the case, but you know, Central banks have agreements among themselves on how they handle their monetary reserves. And monetary reserves consist of foreign currencies, gold, special drawing rights at the IMF, and a reserve position in the IMF Fund. And those are the 4 things that central banks agree are liquid enough and stable enough to constitute monetary reserves. Silver is too small of a market, too volatile of a market. The central banks have agreed among themselves through the Basel Accords and other agreements that silver isn’t sufficiently liquid to be a monetary reserve.
Challenging the silver deficit story
Monetary Metals
Jeffrey, sticking on silver, what do you think of this idea we hear all the time? Silver is in a massive deficit, therefore The price of silver has to go up. It’s simple supply and demand. Jeffrey Christian, what say you to this idea of a silver deficit pushing up silver prices?
Jeffrey Christian
There’s not a real silver deficit. You know, what happened is CPM Group created the World Silver Survey in the late 1980s. So the first issue was dated 1990, but we started to work on in ’89. And we, you know, we had what’s our Silver Yearbook now. We used to call it the Silver Survey, and it was a quarterly report and it cost $2,200 a year for a subscription. And in the late 1980s, the Silver Institute hired CPM Group to advise them and give them a report. Why is the silver price falling? You know, it was $50 briefly in January of 1980, and now it’s, you know, $5, $5.50. And we said, well, 2 simple reasons. No one’s selling it and no one’s buying it. Yeah, back in the late early 1980s, all kinds of banks and brokerage houses and investment banks sold silver to investors and gold. Over the course of the ’80s, most of those companies closed their precious metals desks. There just wasn’t enough money there, and they kept the the paternoster that the bankers had was gold and silver are not. Core banking products. And so they got out of the business of marketing and selling precious silver and gold to investors, and investors were not buying it.
And you also had on the buy side, in the investor side, you had a shift in the early 1980s. Most investment money was managed by the person whose money it was. By the mid-1980s, probably half of the money was managed by professional money managers. And by the late 1980s, it was well over half. And now it’s even higher. And those money managers came out of the stock market and the bond market. In the stock market, you have the SEC says, you know, if you’re going to publish something about an equity, you gotta prove that it’s real. You gotta have evidence that says this is a legitimate thing. If you’re a company issuing equity, you’ve gotta have all kinds of regulations. And if you’re a broker or an analyst, you’ve got to be able to say, no, this is a justifiable conclusion. You can’t just say that company’s garbage. People do sometimes, but they shouldn’t. In the bond market, it’s all math.
Monetary Metals
Yeah.
Jeffrey Christian
And then you get into the commodity markets where there are highly asymmetrical markets. There’s very little good information around. Mining companies will tell you how much they’re mining because they’re equity, they’re public companies and they want you to buy their stock and the government regulates them. But scrap dealers, scrap refiners, refineries, fabricators, and investors have no economic or financial or regulatory incentive to report how much they’re producing or buying. So there’s a tremendous secrecy in commodities, all commodities. But it’s even greater in gold and silver because it’s gold and silver. And one of the reasons why people want gold and silver is because of the anonymity that it gives you. And you’ll find people say, well, I can’t audit the gold market. I can’t audit the silver market. That’s right. And you should, if you want to be an auditor, you can go audit things that are auditable, but in the gold and silver market, you have to understand these are secretive markets. Yeah. So we published this book and we had an agreement with the Silver Institute first 5 years that, you know, we had total editorial control. And we were getting a lot of criticism.
People were saying that we were more bullish than we used to be because we had this agreement with the Silver Institute. And the Silver Institute kept saying, can’t you be more bullish? Yeah. And in our first report we said, you know, there are a couple billion ounces of silver That’s in refined form that investors hold that they don’t report. You know, I mean, this is secretive silver holdings and it’s probably a couple billion ounces of silver. And the Silver Institute members back then— Silver Institute today is a radically different and better organization than it was back then. They were saying, can’t you be more bullish? Do you have to say billions? Could you say There are thousands of millions of ounces of silver in refined inventories. And we said, we could say that, but then Siva would say, you know, why don’t you just say billion? Are you afraid to say that billions of ounces of silver are out there? Yeah. Now, there’s billions of ounces of silver out there. To get to your question, so we left after 5 years. We said, you know, this is hurting us. And, you know, we, insist on maintaining the independence of our research.
So they hired people who had never done any silver research before and said, you want to take over this program, but you have to be more bullish than CPM Group was. Add investment demand to fabrication demand so that you show a tighter market. That has been done in gold and silver by marketing groups ever since. And they give their research out free. So then other people use that data and you see that. We don’t do that. We use Commodities Research 101. A surplus is a market in which there is more newly refined product, whether it’s oil or copper or gold coming from mines and scrap, than there is fabrication demand. And a deficit is there’s greater fabrication demand than there is newly refined material coming into the market. And you want to know that fundamental primary surplus or deficit because you don’t want to invest in a market where there’s a surplus and investors are buying the surplus and you just want to be the greater fool. You want to be the guy, oh, these people have been buying silver and they’ve been driving the price up, so I want to buy silver now that they’re driving the price up.
You don’t want to do that. You want to find a market that’s fundamentally tight. Maybe has a deficit that you can buy into. So the marketers want to show deficits. You take out that investment demand and they have surpluses. You know, if you do your commodities supply-demand research properly, you don’t have deficits, you have surpluses. And those surpluses are bullion, coins or medallions, or bars that are bought by primarily investors and stocked up in above-ground inventories that are in refined metal form that can be sold at a moment’s notice, 24 hours a day now.
Paper gold vs. physical precious metals
Monetary Metals
Jeffrey, now I do want to ask you about some of these exchanges. A lot of people say, well, yes, they have these, this physical inventory of gold or silver that can be sold at a moment’s notice, but there are these paper contracts, these derivative contracts that lay on top. of this physical precious metal, whether it’s gold or silver. And there’s actually more of these paper contracts than there are actual physical precious metals to back up that trade. Whereas if everyone were to say, hey, today’s the day I want some physical delivery rather than just settling on net with cash, there wouldn’t actually be enough physical gold or silver. So Jeffrey Christian, what say you?
Jeffrey Christian
If you look across commodities, it’s not just gold and silver, it’s across commodities. You have Futures contracts and you have options contracts, and now you have these things that I find very objectionable. The betting, the betting systems. Yeah. And you have to understand where the futures contracts began. And that was in the days of expanding global trade, the 14th and 15th centuries, as the Portuguese and then the Spanish, then the Dutch, and then the British started going around the world and trading. And you have merchants who would say, okay, I’m going to go and I’m going to buy gold or silver or spices or whatever. And I’m going to hire a ship and hire people. And there’s going to be this really high risk that they get crushed as they, you know, go around the Cape of Good Hope in South Africa, you know, but if they make it back, I’m going to be rich. And they would want to hedge their exposure. So they would find investors who would give them money to finance that journey. And that’s where futures came from. So if you look at a futures market with the paper contracts, they started off as hedging facilities for merchants.
And you’ll find people who don’t understand all this, and they say, why is it that banks and trading companies are considered commercial entities by the futures markets? It’s like, because that’s what they are. You know, mining companies and refiners, generally speaking, don’t trade on a futures market. They trade with a bank or a trading company, which then trades on the futures market. So if I want to be selling pieces of silver against my future purchases, I have to find somebody who’s willing to buy that silver. And who’s going to do that? An investor or speculator. Who thinks that the price will be higher by the time the ship gets in, right? So that’s where the futures come from. The investors who are buying don’t necessarily want to own physical silver any more than they want to own physical cotton, right? They want to have exposure to the price. And so you can look at the contract and you say, well, you know, okay, we have COMEX, we have all this silver that trades there, and 99% of it Doesn’t get settled in silver. It gets just closed out financially. That’s because 99% of the people who are buying that stuff don’t want silver.
They don’t want to pay 100% for the silver. They want to put up 10 or 15% and have leveraged exposure to rising or falling prices.
Monetary Metals
Right.
Jeffrey Christian
If you took away the futures market, Those people wouldn’t say, oh, well, I guess I have to buy silver. They’d say, I guess I have to go back and just focus on stocks and bonds. Those are not people who would buy physical silver. Yeah. So you’re not going to see a big increase in investment demand for physical silver if you got rid of futures. You might see a price increase because all of a sudden all those merchants can’t hedge it as effectively as they do. So they say, Okay, if you wanna buy silver from me and I’ve got a 2-month process where I’m buying it from the mining company the moment it leaves that mine site, and then I’m— I own it from the time it leaves the mine site and I take control and I send it to a smelter who smelts it, then I send it to a refinery, then I find somebody to buy it from me, a fabricator or an investor. If you want me to take that financial risk, I’m going to have to charge you extra for that risk that I can’t lay off on that futures market that you required some hillbilly politician to close, right?
You know, so you might see a price increase because the cost of transaction in the physical market has increased. You won’t see a price increase because investors say, oh, I can’t buy silver price exposure at 10% on the dollar, so I have to spend 100%. And I have to figure out how to buy and store and sell physical silver. No, it’s not going to happen.
What gold investors keep getting wrong
Monetary Metals
Right. Okay, Jeffrey, I want to get into a rapid-fire round with you. So I’m going to ask you questions from all over the map, and you can answer as short or as long as you want. So let’s start with an easy one. What’s something that you think people who are skeptical about gold as an asset class get wrong about gold?
Jeffrey Christian
When Goldman bought Aaron, the day that they announced that they were buying it, I became a Goldman employee and I met Leon Cooperman, who was the head of investment research. And as I was shaking his hands, he said, I want you to understand, I don’t think gold’s an investment. I think it’s a religion. And I said, I agree with you that most people think of gold as a religion, but I think you’ll be very impressed with some of the quantitative research we’ve been doing. That shows that even though the market is crowded with people who treat gold like a religion, you can make money on it if you’re on the right side of that market asymmetry and you know more about gold than the believers. And he said, no, I won’t be impressed. People treat gold like a religion as opposed to an investment. And I’ve seen people who have made billions of dollars in their business. And they really are tough business people who know how to build a business model and business plan or evaluate it. And they’ve made a lot of money. And then they say, okay, I’m going to take some of my profits.
Jeffrey Christian
I’m going to invest in gold. And I heard this guru on the internet say that the world’s going to collapse and gold’s going to $10,000. So, okay, I’ll buy that.
Monetary Metals
All right, Jeffrey. Now let’s take the flip side for those of us who are gold bugs or religious about gold, people who just can’t get enough about gold. What’s the number one thing that you think they should watch out for that should get their spidey senses tingling and saying, wait a minute, I think this is a bit more fiction than it is fact?
Jeffrey Christian
There’s just so much bad information about gold and silver, partly because it’s a religion. And, you know, it’s got a lot of people who market precious metals based on bad information. And, you know, there’s a lot of arm waving. Oh my God, interest rates are, you know, the The Treasury’s going to collapse. I’ve been hearing people tell me that the US Treasury’s going to collapse since we went off the gold standard in 1971, and it hasn’t happened yet. You know, there’s just so much stuff that is believed, and we always say, don’t invest on your beliefs, invest on your knowledge. And as Warren Buffett says, if I don’t understand something, I’m not going to invest in Right.
Monetary Metals
Okay, Jeffrey, next rapid-fire question for you. What’s the area of the gold market that you admit is— it’s pretty secretive in general, but what’s an area of the gold market where you think it’s actually less transparent than you would like, that you think over time is going to become more transparent for investors?
Jeffrey Christian
Well, the most transparent or the most opaque is investment demand, but you also have a tremendous amount of opacity in gold refining because it’s used in money laundering and drug trafficking and a variety of other things. And it’s basically a secretive place. I don’t know that that’s going to change though. So that’s the big secretive thing that could be more transparent, but it, I don’t think it’s going to happen. We have seen an increase in transparency in central bank gold, but that was part of a broader move toward greater transparency by central banks across their monetary policies and behaviors. And now with the US Treasury and Fed, you’re seeing a shift back to secrecy, which is bad, and that’s very problematic. So that’s the opposite of your thing. I’m not quite sure what you’ll see that’s better. Perhaps one of the things that could be better is there’s a lot of misunderstanding about the way gold mining— gold is mined. And the gold mining companies will go to great lengths to, for example, have standard grades. And the grade of an ore varies greatly. And the mining companies will work very hard to make sure that they can mine the average grade across quarters because they are afraid that if mining investors say, oh my God, Their grade is falling, they won’t get to sell.
You know, and I think that the mining industry could do a much better job explaining that kind of stuff. The other thing is just on the transactions and such. And we’re actually working with one company in India now that is looking to basically create a platform similar to Amazon where people can come and buy and sell gold and silver, bullion form, bar form, coin form, jewelry form.
Gold mining, supply and recycling
Monetary Metals
And now, I want to ask you about this idea of the mine supply of gold. You’ll hear analysts say, oh, we’re not mining enough gold this year, or this is the least amount of new gold discoveries we’ve had in decades. How important is the mine supply to both gold and to silver?
Jeffrey Christian
It’s really important. But again, there’s a paucity of accurate data, and there’s an even greater shortage of understanding of the data. You know, so the, you know, you’ll see people say, well, the grade is declining, the average grade of ores is declining. And in reality, if you look at it, a lot of the mines that have come on stream over the last 5 or 10 years have had higher grade and lower costs than the older mines. And that’s partly because of technology improving. They can recover more gold from the ore. And stuff. So I think that that’s there. And the other thing is that there’s a cyclicality toward the investment in the mining, and it’s very much countercyclical to the price. So when the gold price rises, people start investing in mining companies. The mining companies have a surfeit of money. They can go out and start increasing their exploration and pre-development work. And by the time they get through the exploration, pre-development, development into production, The gold price cycle has changed and the price is falling, you know, and that’s just this terrible reality of the time it takes to develop a mine.
Monetary Metals
Jeffrey, next rapid-fire question for you. What about gold recycling? How important is gold recycling compared to recycling in other industries like silver or other precious metals?
Jeffrey Christian
It’s, you know, I think gold recycling is probably about 20% of the market and silver, it’s probably closer to 25 or 30% of the market. And that basically reflects the fact that silver is a lower-value metal that’s used in more applications. So there’s more silver going out into the market that gets recycled at the end of life. And with gold, it is important and it’s a very important thing. And unfortunately, it’s very secretive. The other thing that people don’t realize is that if you look at secondary recovery, there are 2 factors there. One is, new process scrap that, you know, a manufacturer buys gold and he uses that gold to make jewelry or electronics or something like that. And depending on the techniques, half of the gold that he buys, or 85% in some applications, depending if you’re using sputtering targets, gets recycled as process scrap. It gets left on the factory Table. You know, if you’re making gold coins, you buy gold, you roll it out, you stamp the coin blanks out. Half of the gold that you’ve bought is processed scrap that gets re-refined and resold and redelivered. And then there’s old scrap, which is end-of-life scrap.
That’s— this is gold that’s gone off into jewelry or decorative items or electronics or other manufacturing, manufactured goods, fabricated products. And then that product comes back and the gold gets recovered. We try to measure both, but, you know, people have to be very careful because the new process gold, what we call new scrap, that’s almost a closed circuit. But the old scrap is stuff that’s coming back into the market, gets newly refined, and that’s a new supply. That’s an addition to newly available supply.
Rapid fire: gold, silver, China and Bitcoin
Monetary Metals
I’m going to now ask you questions that you can answer with only one-word response. Maybe I’ll give you 2 because you’ve been such a good guest, but I’m going to ask you questions in rapid-fire succession. You get one-word response to answer. Are you ready?
Jeffrey Christian
Yeah.
Monetary Metals
Okay, let’s start. For the next decade, which do you think will outperform, gold or silver?
Jeffrey Christian
Gold.
Monetary Metals
Next one, which is like the most famous central bank that’s currently purchasing gold that you think will stop its gold purchases?
Jeffrey Christian
I don’t know that any of them will. Yeah, Poland.
Monetary Metals
Okay, next one for you. Fort Knox. Of course, we discussed today on the auditing of Fort Knox. Do you think it’ll actually be audited again because of these renewed demands?
Jeffrey Christian
No.
Monetary Metals
Okay, next one. Which do you think will be the biggest gold market in 2030? Dubai, Mumbai, or Shanghai?
Jeffrey Christian
Shanghai.
Monetary Metals
Okay. Who is the most important driver to the gold price? Investment demand or something to do with the supply, the mining supply of gold?
Jeffrey Christian
Investment.
Monetary Metals
Next one for you. Will interest rates be correlated with gold prices going forward, or do you think there is no longer a correlation between the Fed funds rate and gold prices?
Jeffrey Christian
I don’t think there ever has been.
Monetary Metals
Okay. Next one. How about the midterm elections? Do you think the elections have any correlation to the price of gold?
Jeffrey Christian
Yes.
Monetary Metals
Okay. How about recycling? The recycling aspect of both gold and silver, is that overrated or underrated when it comes to investment, the thesis of investing in gold and silver?
Jeffrey Christian
Underrated.
Monetary Metals
Okay. Which of the BRICS countries do you think is most likely to outperform versus underperform in the BRICS group, which is Brazil, Russia, India, China, and South Africa?
Jeffrey Christian
India.
Monetary Metals
Okay, next one for you. Is there any chance that the gold that the US Treasury holds will be revalued on the books?
Jeffrey Christian
No.
Monetary Metals
Okay, gold to silver ratio. Jeffrey Christian, do you find the ratio between the price of gold and the price of silver to be useful or not useful?
Jeffrey Christian
Not useful.
Monetary Metals
Okay, Bitcoin. Is it a competitor to gold or is gold going to stick through and become, become the kind of main safe haven asset?
Jeffrey Christian
Gold.
Monetary Metals
Okay, how about tokenized gold, Jeffrey Christian? Of course, we’ve heard about all these companies that take gold, they put it on a blockchain. Do you think tokenized gold is going to be the next iteration of the market, or do you think that we’re going to stay in the physical market?
Jeffrey Christian
Physical.
Monetary Metals
Okay, a couple more for you. What’s the biggest misconception investors have about gold?
Jeffrey Christian
That it is more volatile than other things.
[Monetary Metals
And what’s the biggest misconception that investors have about silver?
Jeffrey Christian
That there’s a deficit.
Monetary Metals
Okay, now here’s a tough one. What’s the best gold dataset that’s publicly available, not from our friends at the CPM Group?
Jeffrey Christian
There isn’t any.
Monetary Metals
Okay, Jeffrey, what’s the least reliable dataset that’s commonly cited by gold and silver advocates?
Jeffrey Christian
It would have to be our ersatz competitors, that produce for the World Gold Council, the World Platinum Investment Council, and the Silver Institute.
Monetary Metals
Okay, Jeffrey, you have just a wealth of knowledge about gold and silver. What’s one book that you could recommend everyone who’s interested in the history of gold and silver read?
Jeffrey Christian
I wrote Commodities Rising, published in 2006.
Monetary Metals
Okay, that’s an easy one. All right, a couple more rapid-fire questions for you. Will we ever see a balanced budget in the next decade?
Jeffrey Christian
No.
Monetary Metals
Which country is going to be the most important for the mining going forward?
Jeffrey Christian
China.
Monetary Metals
Which country, if you had to guess, has the most inaccurate data about their gold holdings?
Jeffrey Christian
I don’t know any.
Monetary Metals
Okay, Jeffrey, next one. Which country do you think has the strongest culture of owning gold?
Jeffrey Christian
India.
Monetary Metals
Okay. And last one in the rapid-fire round. What’s something you’ve changed your mind about in the last 40 years when it comes to gold and silver?
Jeffrey Christian
I think I’ve become much more convinced that gold makes sense as a core part of one’s portfolio or wealth.
Monetary Metals
Okay, Jeffrey, here’s a question I ask all of the guests before they leave.
Jeffrey Christian
What’s a question I should be asking all the future guests How confident are you in the information upon which you base your either thoughts or beliefs?
Monetary Metals
Jeffrey Christian, if people want to be really confident about what they’re basing their beliefs off of, they have to read all the research that comes out of the CPM Group. But Jeffrey, where can people read more about you and of course your work?
Jeffrey Christian
Well, our website, www.cpmgroup.com. We also have hundreds of videos that we’ve posted on YouTube over the years, as well as other interviews and presentations, including like a 3-hour presentation on silver conspiracy theories, the evidence for them, the evidence against them, and the history of studies on that subject. So our website and the YouTube things. And if they bought like our gold yearbook or our silver yearbook, that would give them an excellent introduction into the level of unbiased, accurate, somber research that we do.
Monetary Metals
Jeffrey Christian, it is always a pleasure having you on as a guest of the Gold Exchange Podcast. We’ll have to have you on again soon.
Jeffrey Christian
I find that hard to believe, but I welcome the opportunity.
Monetary Metals
All right. Thanks so much.
Jeffrey Christian
You’re welcome.
