The 6 Questions Intelligent Gold and Silver Investors Should Be Able To Answer

In this presentation, CPM Group’s Jeffrey Christian discusses some of the issues that institutional investors find as potential obstacles when deciding on the wisdom in investing in commodities.

Their hesitations usually include the following six questions:

1. How do you quantify commodity returns?

2. How do you value commodities?

3. How volatile are commodities prices relative to other asset values?
4. Are commodities good inflation hedges?

5. How do investors generate alpha with commodities?

6. Which commodities indices should be used in research measuring commodities performance?

Jeff briefly goes through these questions to shows the correct way investors should look at Gold, Silver, and other commodities.

#gold #silver #commodities #preciousmetals #investing

Good afternoon it’s Jeffrey Christian of CPM group it’s a little after 4:00 in the afternoon here in New York on uh Monday the 19th of February I’m recording this for release on the 20th of February because I’ll be out of the office uh on that morning uh doing some personal

Business I had mentioned earlier in the year that I wanted to talk about quantifying Commodities Investments for investors and that I would give a highlight of a overview and then hopefully over the course of the year uh 2024 uh delve into like the six questions that uh should be asked um I

Tell an anecdote about my early days my first day at Goldman Sachs uh a very powerful and very intelligent and very successful investor uh investment analyst said to me that he thought of gold as a religion and not an investment and I in my naivity at the time said well I think

That for many people gold is in fact a religion but I think you’ll be very impressed by the quantitative work that we’ve done that shows that you can qual quantitatively uh and intellectually invest in gold and other Commodities um alongside with stocks and bonds and currencies um he said he

Didn’t think he would be impressed by our work uh but I think over the last 40 years of knowing him maybe he has become a little bit uh impressed now I also tell an anecdote about meeting the invest Chief investment officer of one of the largest uh p Pion

Funds uh Union Pension funds in the United States and this goes back to probably around 2008 when there was a whole lot of hype from Banks and Burr houses about the commodity super cycle and those of you who have listened to us know I think the commun commodity super

Cyle is nothing more than marketing hype and what was going on from 2002 to 2011 was economics 101 it wasn’t anything that was out of the order ordinary it wasn’t a super cycle it was uh certain markets catching up with other markets that had outpaced uh Pac

Them for 10 20 30 40 years um and it was all really explainable with basic economics uh she said these Banks and brokerage houses keep coming to me and saying I should have Commodities in my portfolio but they can’t tell me why and I said we can CPM group that’s what we

Do and there are various reasons why an Institutional Investor should and can uh benefit uh should have and can benefit from having Commodities in in their portfolio uh she had five questions she said if you can answer these five questions I’m your client we add it a

Six to one and I want to talk to you today about those six questions just put them out there and make a couple introductory comments I want to deal with them in detail but over the course of the year maybe I come back in six different videos and deal with each one

First one was how do you quantify commodity returns there’s this myth that Commodities have no returns and therefore you can’t really quantify them and put them in a diversified portfolio with stocks and bonds and say well this is the the return this is the comparable return and this is the comparable risk

Reward ratio that’s not true Commodities have returns they have uh a variety of returns and those are measurable and you can calculate the risk reward ratio the you know historical returns relative to the historical price volatility and you can compare that with stocks and bonds and currencies and other Investments

Including real estate so that’s the first question second one is how do you value commodities well there are clear concrete reproducible ways to Value Commodities and it’s actually very straightforward uh it’s not these are not Bitcoins they’re not pet rocks they’re not internet startup companies in 1999 Commodities are easily valued and

Anybody who has trouble valuing them needs to come to CPM group and hire of their advisers third one is how volatile are commodity prices relative to other asset values and again that’s readily measurable readily quantifiable and we’ve done that we’ve done that work for almost half a century

Now where you can compare the commodities prices relative to other asset values and I’ll just say one thing here a lot of people measure gold or silver or oil relative to say the S&P 5 00 or the Dow Jones Industrial index or some index of corporate bonds or other

Uh debt bearing Securities and that’s an inappropriate way of doing it CPN group falls into that trap too because that’s the way the market thinks about these things but you’re talking about gold or silver or oil you’re talking about a single asset talking about a Dow Jones Industrial Average you’re talking about

What something on the order of 30 different assets that are are being averaged and with the S&P 500 you’re talking about 500 assets that are being averaged the average the volatility of averages of 30 or 500 or whatever you had want you look at the Russell 5000 um

The volatility of a an average of a large number of assets will always be lower than the the volatility of a single asset like gold or silver or oil and if you want to have an accurate comparison you should look at gold versus a stock Microsoft or you know our favorite

Uh Tesla if you want to look at volatility uh in relative volatility compare gold to Tesla so volatilities are easily measured for Commodities and they’re also easily compared to other assets by the way the two most volatile commodities hisor historically price-wise are natural gas and silver highest price volatilities um and

There’s a very interesting work that we’ve done at times over the years which shows that whether or not a commodity is trade it on a Futures exchange doesn’t necessarily indicate that it’s going to be more or less volatile than a commodity that is not traded on an exchange there are people

Who will tell you that trading on an exchange re increases the volatility of a commodity’s price and there are people who will tell you that trading on Exchange decreases the volatility of a given commodity price and the reality is that you can find examples that will

Justify and support both of those but if you look at Commodities across Commodities if you take maybe 30 or 50 Commodities some exchange Trad in some not non exchange traded you’ll find it’s other factors that determine the relative volatility of those Commodities it’s not whether or not they’re trade it on a Futures

Exchange are Commodities good inflation Hedges yes they are but you have to understand what that means it doesn’t mean that the commodity trades tick for tick with inflation and you also have to say well which inflation are you measuring uh it doesn’t mean that it

Moves tick for tick what it does mean is that generally speaking if you have Commodities in your portfolio the commodity the overall portfolio return will do better in inflation in the long run facing inflation and disinflationary times than whether uh than a portfolio that doesn’t have the Commodities how do investors generate

Alpha with commodities Alpha and beta data or the fancy way of saying uh profits and ande uh wealth preservation uh there are many ways to profit from Commodities Investments and it’s not just buying low and selling high buying low and selling High makes sense uh but there are many other uh mea mechanisms

Available to Savvy intelligent quantitatively based uh investors uh in which they can generate Alpha with commodities you don’t just have to be Savvy and buy low and sell High and the sixth question was which commodity inet uh indices should be used in research measuring Commodities performance and the answer is well you

Should use a a number of of commodities prices but CPM group uses the crb index and we use that that’s been around since 1950 7 1958 the commodity’s research Bureau built it and maintained it it’s gone through several ownerships I believe Jeff uh might now own the crb

Index um but we use that one a it’s uh it was created by economists and Market analysts uh to be objective there are many other commodity industries that have been created by other people in order to prove a point you know I want to show that overall commodity prices

Have a better relationship with inflation or a lower relationship with inflation or mismeasuring inflationary pressures and so they’ll skew the contents of the index to justify their conclusions uh and there are others that have a very you have to be very careful because oil and energy represent such an

Enormous portion of the value of commod aage and if you’re not careful in say if you put in WTI and uh Brent oil prices you you skill the index value to be heavily weighted in oil and energy and you miss a lot of other factors that

Are there so those are the six big questions if you want to intelligently invest in Commodities and you want to use the quantitative tools that are a available to get away from the belief system those are the six those are six big questions to address and understand

And embrace in order to do that hopefully over the course of the rest of the year we’ll be able to explore each of those in Greater detail CPM next week on uh February 28th we’ll be doing its facts and Fantasies on Silver uh you’re welcome to join uh

You can go to our website and find a way to join it it says click here to find uh sign up hopefully we’ll put a link in uh on this YouTube that will allow you to do that uh at this point it’s probably going to be about two hours long and we

Have more than a hundred questions that people have sent in ahead of time for us to address other people will be allowed to send in questions during the uh uh webinar online seminar over the period of time we’ve got that coming up we’ve got our pdhc silver reception and

Then March May July we’ll be coming out with our yearbooks uh and we still hope to do a silver7 hour in October in Spokan that’s all I have for now you can go to our website learn about other things you can send us an email at info

Cpm.com um take care of yourself take care of those around you um be good to the world and we’ll talk to you later this week