Interview by Mike Gleason of Money Metals Exchange with David Morgan
Precious Metals Soar on Falling Yields, Global Currency Turmoil
Mike Gleason: It is my privilege now to welcome back our good friend David Morgan of The Morgan Report. David, it’s always good to have you on and appreciate you joining us today. How are you, sir?
David Morgan: Mike, I’m doing all right and it’s good to be with you.
Mike Gleason: Well, David, I know we don’t have a whole lot of time today, but I’m really glad we’re able to speak to you this week because we’re finally seeing some real fireworks here in the metals lately. And I wanted to get your comments.
I should mention that we’re talking here on Thursday morning and we’ve got gold hovering around $1,500 and silver right at about $17. They both popped above those respective key levels yesterday, Wednesday. So first off, what do you make of this move, David? What’s driving it? And the bigger question, will it be sustained?
David Morgan: Well, what’s driving it is something that no one’s really, really talking about. This is my opinion. Of course, you’re asking for my opinion. A lot is the financial press, “Well, It’s all about this trade war with China and the trade war is getting worse. And there’s going to be more sanctions coming in,” and on and on and on. And that may have something to do with it.
But first of all, the underlying fundamental is financial uncertainty. That’s number one. But beyond that, it’s really something going on in the physical market that no one’s really writing about and I don’t know enough about the state other than it’s got to be part of it. The reason I say that is that the paper paradigm is very clear on how the markets move in the futures markets with trading this paper back and forth for contracts to buy and sell silver. And all they really do is set the paper price.
And of course the metals price goes along with that. I’m not trying to discount that very much. What I’m trying to state is that the paper markets dominate the price over and over again. And every now and again you’ll get in a situation like this where something’s going on, where something needs to be fulfilled and accomplished, and it hasn’t been settled out yet.
So for an example, let’s say there’s some bank that’s demanding a physical settlement in gold and they haven’t received it yet. Once that’s accomplished, you may, and most likely, see the market cool off and go more into some type of trading range where you’re more apt to be able to look at the paper trades, more of what we call levels that we’re used to seeing.
So, I think there’s something out there. Whether that’s occurring with silver or not, I doubt it, right now based on the fact that silver has been lagging gold so much. And there’s a couple of gaps in the charts that will probably be filled, one, you haven’t missed this move at all. If you bought yesterday at maybe the high, I don’t know yet, and it goes down and let’s say silver makes it all the way back down into the, I don’t know, $15.50 range or something, you haven’t missed much. Yeah, you wouldn’t want to buy and see a loss right away. But what I’m trying to state is this, I’m convinced, is the real move. It’s going to be multi-year. And silver and gold, at the end of three, four years from now are going to be substantially higher than they are today.
Mike Gleason: Certainly strong comments. You’re always take a very level-headed approach and have not been just pumping sunshine over these last several years every time we get a rally. So, that’s definitely something that we should all take note of.
Now, silver, you mentioned this, silver does seem to be underperforming a little bit vis-a-vis gold. And now we’ve seen the gold-silver ratio come down from, I think I saw it 93 to one, maybe about there, within the last few months. It’s about 88 to one right now. So, silver has gained somewhat but maybe not quite like you would expect given a big bull move and given that silver should vastly outperform gold in a bull market. So is this seeming lack of out performance from silver a cause for concern?
David Morgan: Somewhat still it is. First of all, I like to see, I mean 80 to 1 at a minimum. And even there that’s an extreme.
When I started the previous website – my website, I think everyone knows is TheMorganReport.com – I rebranded that for years now because I want everyone to be aware that I cover all the resource sector, lithium, rare-earths, et cetera, and not just silver.
But back in the older days with Silver-Investor.com, when I started that website, the ratio was 80 to one, and that was an extreme. And if you would have asked me, even, I don’t know, three years ago, a couple years ago, “Will you see the gold-silver ratio above 80 to one?” I would’ve said, “No. I really, really doubt it” and I’m wrong. It’s got to about 93, 4, 5, somewhere in that range.
So, to really be convinced that, and first of all, I’m convinced that we’re in a new bull market, to be convinced that things are, let’s say, going to show both metals really outperform many other sectors, the equity markets, the bond market, the real estate market, everything else, and take the dominating lead as this currency crisis continues, I want to see silver below a 70-to-one ratio. That would be ultimate confirmation for me, Mike that okay, we’re well on our way, and we’re not. We’re at 88.
Silver has some work to do. Silver is, in my view, much more difficult to analyze than gold, but it can make these moves rather drastically and quickly as gold is doing. Of course, silver’s done pretty good job here of late picking up some momentum and moving from the doldrums into the 17, which is still dirt cheap.
I mean, if you take an AISC, all-in sustaining cost, for some of the major silver producers, they’ll tell you they’re at $15 but they don’t tell you is what their taxes are. So if you add those in, a lot of them are right at basically where we’re at, in other words $17. They’re just break even.
And for any company, what they’re making dresses or corn chips or cola, you want as wide a margin as you can get commensurate with what the market’s willing to pay for your product. And in the case of silver, these companies are still struggling at these levels. So, silver’s got a long ways to go, as does gold, for the margins to be large enough for these companies to breathe easy and have a viable business and be able to have a cashflow that allows them to go out and explore further or retain assets or whatever. So, I see a lot of upside but I’m also anxious for silver to kind of show its wings and fly, and that type of thing.
Mike Gleason: Gold has risen to levels last seen in 2013 when it broke down. But silver obviously is nowhere near those levels, which was say the mid-20s at about that point. What is it going to take for silver to get back above that say into the $20 plus range and what are some of the key resistance points you’re watching for silver between here and there and then beyond?
David Morgan: Okay. Well for, yeah, it does take more interest in the metals all together. Obviously there’s a lot of interests coming in, but it’s mostly institutional. It’s not your retail (investors) at this time. I talk to many dealers such as yourself, Mike. And what I found out was a little bit surprising. A lot of this trading is going through, as I said, institutions which means futures trading and ETFs and a lot of the retail investors are saying, you know what gold’s back to where I bought it, I bought it at this $1,450. It’s there, I’m selling it back. So a lot of the retail investors aren’t believing this rally is for real. And what they’re doing is basically getting their money back. Not all of them of course, but so there’s a lot of work to be done on the silver side. There is lots of areas of resistance on this.
Pulling up a chart as we’re speaking, Mike, because I anticipated this. So there’s huge resistance at $17, which is where we’re at right now as we speak. Will it get through that? Yes. Eventually it will. Will it instantly? I doubt it. I think it’ll come back and fill the gap. And I’m going to do an update for my paid members here, show them where a good entry point is. If they have stopped, if they want to get into this market or add to their positions, whatever. Normally I do that all through equities. I use the futures as a proxy for the overall market. Doesn’t mean you should do futures. In fact, a dissuade anybody from using the futures market. It’s just, that’s where the price is set. So it’s easier to analyze, and I can show them on the chart when silver gets to this level, that’s a good time to start buying your top tier or your favorite junior or whatever you’re going to do.
So, $17… $17 to $17.25 is a pretty big area of resistance. After that, it floats up to a really $19-20 pretty easily. So once we work through that level, Mike, you’ll probably see an acceleration of silver from, I’m going to say $17.50 up to $19.50 I expect it to go to that level fairly quickly. It won’t be like two trading days, but it may probably won’t take very long. Silver could surprise anybody, even me as far as how it reacts. It doesn’t seem to ever do what you expect it to do. But regardless it will outperform and we do need to see a higher level. Once again, over the $20 level, I think the psychology will change and people will say, “It’s silver, not so bad.” Now, they won’t touch at $15. I know you guys sell silver at all levels and every day and there’s always purchases.
But, mark my words, you check the volume and activity at your business. How many people are calling in and buying silver or when it gets silver when it gets over $20, what it’s doing now, and I’m sure you’ll be selling more at that level. People just love to buy the metals at a higher price. When I’m pounding the table saying “This is it.”
Because most people don’t want to put up with, the time, the patience that’s required, if you bought silver at $14 at the end of 2015. Watched it rally all the way up to $21. I was convinced at that time where the bull mark was back in tact. And in a way it is, I mean if you look at gold from that perspective, that’s where it bottomed and has had high or lows all the way up. Silver’s chart doesn’t look like that. Silver bottoms at the same time as gold, which is December, 2015. and it has not made high or lows all the way up. And we’ve basically stayed flat to about $15.75 and then it broke down from there and it got down as low as the 14s. So still higher than it was in December, 2015 but a messy chart, let’s say.
Mike Gleason: Yeah, there’s certainly some big, big levels above us and yeah, I agree. I think when we see silver, get that two handle again. I think that’s when a lot of people are going recognize that okay, it’s time to start moving and the smart people will do it before then.
Again, thanks David for fitting us in. I know we had a tight window here and it’s been great to have you on. But as we wrap up though, I want to give you a chance to fill our audience in on any of the other markets that you’re looking at here.
David Morgan: Sure. Always looking at the equity market and of course the bonds are the key and the currency markets – we looking at everything really. I think the stock market is showing some wear. It’s been a bull market for quite some time. It’s overvalued by any metric you want to use. I’m looking at that and see it get rolled over further. And then bond market of course is the key because this is the debt markets that everything depends on and how much faith there is in that is going to determine the future of the financial system. So, those are key currencies. As I’ve said many times you can see gold and the dollar go up. Dollar’s making new highs. Gold’s making a six year high. And I said “Watch.” And of course here we are. There’s a reason for that. So, I think that’s about it.
I just close out, I got this email. “I’m a young guy, I have a high conviction, precious metal is the best place to be in the next three to five years. I’m in need of guidance of how to build a long-term precious metals portfolio. I want to fund this as soon as possible. I know you’re not a financial adviser, but you offer services that will help me start a precious metal portfolio. I continue to monitor the market on an ongoing basis with your analysis, can you help me?” And that’s almost precisely what I do. So, I will get with this gentleman and kind of reaffirm what he’s already asking. Can you help me? Yeah, that’s what our business is. So anyway, if you want to learn more, just go TheMorganReport.com put in a first name and an email address, be happy to put you on our free list. And you can determine from there, if you want to go further.
Mike Gleason: There’s probably no better time to get in and get on board with services like The Morgan Report, and the great commentary that David and his team put out there. And, and just see what’s going happen and what they have to say about these markets as we could be entering this new bull phase. I mean, you heard David say it, he’s convinced we’re in a new bull market and this is going to be an exciting time and the time that precious metals investors have been waiting for, for a number of years. So definitely urge people to take advantage of that and go to TheMorganReport.com it’s truly great stuff. You have just heard what David was talking about. A great approach to all these markets and lots and lots of experience over the years. He’s seen everything.
Well good stuff David. Always appreciate it. Thanks so much. I hope you enjoy the rest of your summer and I can’t wait for our next conversation, take care.
David Morgan: Thanks so much Mike. It’s great to be back with you.