Guillermo Barba’s Global Financial Intelligence Blog is pleased to present this exclusive interview with David Morgan, a world known expert on the silver market and author of The Morgan Report.
Thanks David for accepting this interview here, in Acapulco.
Guillermo Barba (GB). Dave, the major bull market in precious metals seems to have ended in 2011? What happened?
David Morgan (DM): Before the peak we had a major breakout from a long channel formation around the US$19 level. In fact, I traded this almost perfectly! I made a video for our website members (subscribers) to get in once the break above nineteen took place. So, at that breakout we were long, leveraged or not. I was leveraged.
The silver market rose to about twenty-six and began to stall out. So, I decided to take a profit around twenty-six because it was oscillating near that range. Right after I took that profit, the Federal Reserve announced QE2, and everybody who really knows what the silver markets about means jumped on silver!
I’ll give credit where it’s due, and that goes to Professor Roy Jastram from Silver: The Restless Metal. Once he wrote The Golden Constant, the next question was, how does silver react during times of inflation, during times of deflation, during times of currency wars, what does it do? So, he wrote Silver: The Restless Metal He determined that that silver is very much the best asset during inflation.
Therefore once QE2 was announced, everyone who knew what that meant said “I’m getting into the silver market, because inflation is coming!” Upon the QE2 announcement, we went back into silver at twenty-six, level the same place we had exited our trading position.
Once that announcement was made, silver kept going up and up and up, and then I got a little . . . I wouldn’t say scared, but concerned, that a lot of people . . . too many people were getting in above thirty. So many people thought silver could only go to one hundred.
I was warning people on my public interviews that once silver hit the 30 to 35 range – “If you have to buy silver, please just buy part of what you want to own, don’t buy the entire position. This is dangerous territory.
We completed our trade very near the top and this information was presented to our website members buy our Alert system. There were several things that told me it was the top. For one, the sentiment was become extremely bullish – there wasn’t anybody who wasn’t bullish on silver.
Second, the amount of subscriptions we were getting was over the top. So I knew from that amount of input into the business that it was getting way over-extended. Things can only go straight up for so long. Based on that, my experience and knowing that it was possibly a double-top, even though it was a nominal 50 dollars. 50 dollars in 2011 is far less valuable than 50 dollars in 1980 but that’s not the way the chartists look at it. So I called the top around 48.
I may have been lucky to call that top, so time will tell. David Smith and I have already written a third book called Second Chance: How to Make and Keep Big Money From the Coming Gold and Silver Shock-Wave, which talks about how to take a profit, not get too greedy, and cautions that it’s an amateur’s attitude to expect to be able to call the exact top.
GB. YTD silver has been going up from 16 to 18 USD, but last year, there was a strong rally which finally had a retracement. What’s your prediction for 2017?
DM: I’m looking for about a 30% move (barring a black swan type of event), unless there’s something really bad in the economic condition – for instance an acceleration of war in the Middle East or something unthinkable with China, perhaps something in the financial markets, if there’s a fail-to-deliver. However, barring any of those things, we had about a 40% increase last year, 2016, so for 2017 expect another 40% move to put us to maybe $20 or $22. I don’t think we’ll get much more than in the $20’s in U.S. dollar terms this year. Unless something really big happens and obviously the market could then take off rapidly.
GB. In general, do you think that President Donald Trump is going to be good or bad for precious metals?
DM: Essentially, good. He’s going to set lots of inflationary policies into place. And again, silver is the most heavily related asset to inflation. It’ll sneak in and when it first starts, people will believe a little inflation is good – it’s not! – People will feel better, more money is flowing, people may begin to think, and America is great again! Well, not everyone!
At some point it will start to sink in that everything costs more at the restaurants, at grocery stores, gasoline is back over $3.50 a gallon, my insurance costs are going up, and once all that starts to become apparent to them, it will be known maybe inflation isn’t such a good thing. And then people will ask– what can I do? And then you’ll see a big move into the precious metals. That could happen as early six months from now but I doubt it, I think it’ll take a year-a year and a half, so 2018 is going to be the year that they light a match to the silver price.
GB. Trump has promised several policies like a new BAT, tax reductions, deregulations, etc. that could end strengthening the USD. Some analysts (including me), think that a new stocks market bubble is being inflated and that when that bubble pops, the USD could inflate even more because most people perceive the dollar to be a safe heaven. Isn’t the possibility of a stronger dollar a new risk for silver (and gold)?
DM: Yes. I think you make a strong argument. I’ll take your side on it, I wouldn’t argue against it. What I would say is that there isn’t a direct correlation between the dollar and the gold and silver price 100% of the time. When we have times of extreme financial stress, money seeks safety and stability and there’s nothing more stable than gold. It doesn’t change, what changes is the price and the perception of what it means, and I think in the scenario that you outlined, that you’ll see people move to gold, even at a higher dollar price. Once that momentum starts – it’s velocity of money and perception of what’s happening at that time that will drive the gold price.
GB. In your opinion what would be a buying opportunity level for silver?
DM: Let me answer that in two ways. One, if you don’t own it, you must. It’s a must own. So, if you don’t own it, you should buy about half the position you require. I’d say anything below 20 dollars is a good long-term buy – if you’re an investor, not a trader. If silver happened to drop under $15, then I would complete my purchases. If on the other hand silver moves above 20 then you would need to buy at a higher price. The best method is to dollar cost average and this is available for free, just Google Ten Rules of Silver Investing by David Morgan and you can study the outline.
GB. What will be the main drivers for the price of silver in the foreseeable future?
DM: both, industrial and primarily monetary demand. Industry keeps finding more uses for silver and in addition, more people will wake up to the silver story as time goes on. So, the demand side will be a one-two punch both industrial and monetary demand increasing at the same time. Although industry actually has a greater demand presently than investment demand this will change in the future and monetary demand will increase more rapidly than industrial demand.
GB. In your latest article, David, you wrote that real assets are at historic lows against financial assets. What does this mean? Is this good or bad news for commodities investors in general and precious metals investors in particular?
At this point in time, subject to change, the commodities markets are really not that strong, even though commodities are what we need, not what we want. We need all these agricultural commodities. However, there’s a contraction within the global economy, which means there is still some pressure on base metals for example. That could be ending but I do not see it at this point in time. On the other hand, the top tier of all the commodities is—money, both gold and silver. So right now we’re going to see less of a rush into the base metals and the commodities sector and we’ll see that the precious metals have the most emphasis.
GB. What’s your vision on the USD? I mean, do you think that the American currency is doomed as a safe heaven and as the world’s reserve currency?
DM: I started to have that opinion – which I still hold – early on in the 2000s, when I began writing for the public domain on the Internet. My basic premise has history on our side, which is that all FIAT currencies are destined to fail. That doesn’t mean it goes to absolute zero, rather it means that it’s not used in transactions, or not trusted or accepted. So maybe someone prefers to use Bitcoin to make a settlement rather than the USD or the Chinese Yuan or perhaps it’ll be the SDR. So, I think, longer term, the dollar is doomed.
The US dollar has a positive interest rate, but about 30% of the other world’s debt markets are yielding negative interest. Thus the U.S. dollar is stronger than these other currencies and it can maintain its relationship longer as the world’s reserve currency. This is because if you can get only a negative interest rate in the Euro, whereas you can get a positive interest rate in the dollar, there’s going to be more emphasis to move into the dollar.
GB. That said, what’s in your opinion the best ways to invest in silver? Physical bullion, coins, mine stocks, ETFs?
DM: I’ve always been consistent here. I think the best way is to start with physical silver first. For most people, bullion coins are best, because they’re smaller denominations and give you a lot more flexibility.
After that, if you really want to make money you must invest in some “paper” precious metals, which means the resource sector, by becoming a stakeholder. Myself and many other have made far more “money” in the mining/resource markets, which is primarily mining stocks. For example, in 2016, you could have bought First Majestic at $4.14 at the bottom and sold it at $19 at the top and made 5 times your money. Yet we all know we did not see a 500% movement in silver bullion. However we did see a 500% move in First Majestic Silver, a NYSE listed company, and we caught most of that. The point is that if you have secured a physical metals position, and you want to balance your portfolio, you must add some resource stocks to really maximize your returns.
GB. Are we still in a deficit in terms of silver production?
DM: One of the most misunderstood things about silver is that there is a silver shortage. And the facts are very simple. Between 1990 and 2006, we were in a silver deficit, which means we used more silver than we produced. We had about two billion ounces of investment grade silver in commercial bar form. From 1990-2006, a period of 16 years, demand ate about 1.5 billion ounces of silver, which means the above ground supply was at 500m ounces,-which was in 2006.
From 2006 until the present day, we have been rebuilding inventories of silver, and now we’re back to about two billion ounces, counting both commercial bars and coins. So when people say that we’re in a silver deficit, what it means is that there’s a deficit between what is mined and what is demanded from monetary and industrial sources on a yearly basis. But what they don’t tell you, or what perhaps people don’t understand, is that if you add in recycled silver, which is around 160m ounces a year, silver inventories are actually increasing not decreasing. Some of it ends up in landfill, but not all of it. A lot of silver is recycled. So if you add in all sources of silver, it’s bigger than all demand, which means it’s building up the supply. We’ve now built it back to the 1990 levels, of about 2bn ounces.
GB. Is it possible that prices can go higher even when silver is not in a deficit?
DM: Yes, the price of anything in a true free market is based upon demand. If the demand exceeds supply at a given point in time, upward pricing pressure is exerted. If silver had to be in deficit in order to justify owning it, then by the same token, you would never buy gold either, because gold inventories are always increasing! Having a deficit surely makes it more attractive, but the low physical amount (overall supply) took place in 2006, yet the price peaked five years later in 2011, when inventories had been building for five years. In other words some investors put too much emphasis on the “shortage” story.
GB. How could a Mexican investor invest in silver in a good way?
DM: I think the Libertad is the best way to do it for Mexican people, but you would be better sourced to answer that question than I would! But that would be my first choice, physical and probably the silver Libertad, since it’s well known in the country.
GB. What’s your opinion about Hugo Salinas’ proposal to monetize the Libertad silver ounce?
DM: Well, I love it. When he first wrote about it and I became aware of it, Salinas’ proposal was supported by 24 out of 24 states in Mexico…every one of the governors was for this idea! But once the bankers saw this proposal they were immediately against it. So the people, the governors of the states, the legislators are for it, but it has not happened yet because the central bank opposes it.
Tell us about Second Chance, your latest book. Is there a second chance in precious metals?
DM: Absolutely, I really believe there’s a second chance. A lot of people think they’ve missed the move, and let’s face it, as of today, they have missed the move. Silver moved from $19 to $48 as described earlier. From the time I founded the website silver was under $5 U.S. and has been up ten-fold. Now prices have come back to a level where even the best silver miners are barely making a profit. This is the time to buy and wait for the final up leg in the silver market, which could be the strongest and most dramatic ever experienced. In fact almost all of our research indicates that the precious metals, over the next several years, will outperform both stocks and bonds.
GB. How can investor keep in touch with you, David?
DM: The best way is to get on our free email list, which is at themorganreport.com and the other way is to look at our Twitter feed, which is @silverguru22 and our YouTube channel, which is silverguru. So those three ways are probably the best.
GB. Thank you David