Transcription
But the supply structural supply deficits continue while the investment demand continues to expand. So I still believe silver has its biggest move ahead.
Hi, it's Maggie Lake with Gold Silver talking with David Morgan, founder of the Morgan Report about the outlook for silver. But let's talk about central banks because I think this is interesting. How does this change this cycle? And do we now have do you see this as a now I don't want to say permanent but a long-term feature now of these markets that you are going to have a buyer who's there stepping in every time metals fall to a certain point and are they an indiscriminate are they a price insensitive buyer?
Well, from what we've seen the last year, um, the central banks are pretty much an indiscriminate buyer. And I think the reason for that is been said by myself and many others that, you know, I think the biggest mistake of our administration is the fact that they weaponized the dollar when they took 300 billion from the Soviets, from Russia, I should say, uh, away from them. Then uh all other nation states had that giant aha moment. Oh my goodness. You know if the US can take steal their money which is basically what they did then they could do it to us. Well if we have gold stockpiled in our vault on our sovereign soil there's nothing they can take from us.
And that's a big shift in consciousness that monetary consciousness. It's like wait a minute what's real and what isn't? What I always believed to be real, sound as a dollar. Again, international trade, you have a pile of treasury bonds, you can use it as collateral and leverage the heck out of it, which is how the markets work. And now it's like, well, I don't think I want so much. If I have so much in, you know, my bank account and the US can uh sterilize it, uh, I'm scared that that could happen to me. What I'm not politically correct on the international scene and the US does it to me. So that would say I'll buy gold at almost any price because in dollar exposure scares me and that's not too far off. I mean, I don't think I've embellished it. Maybe a touch but I didn't mean to. I want to be objective about that because that's the current thinking. Now you don't hear it unless you're doing an interview with myself and others in our peer group. You're not going to hear it on the mainstream financial press. But that's actually what's taking place. So they're
We can look at China's purchases of gold through th this year and it it largest ever is kind of the headline I see every month.
Exactly. I mean, the actions speak louder than words. They're buying, you know, hand over fist. Well, maybe not quite at that rate, but they are continuing to buy under all conditions. And it's gold is the money of last resort. I mean, I'll digress very briefly, but if you go back to the Bank of England having massive problems during the Sir Isaac Newton era, uh, they were having very big problems. And Sir Isaac Newton put them back on a gold standard and everything's calmed down and got back on track. And the reason it was knighted wasn't because of Newtonian physics. It was because he came back and put a gold put the uh, British pound back on the gold standard. It's amazing that some of those early uh like important figures did so much. They were scientists. They were political theorists. They were economic. It was it's amazing when you when you actually dig into some of that history. Uh what is your view on talk that Hong Kong's looking to build a global clearing system to rival London is the sort of center of gravity for metals moving to Asia?
I believe so. I mean, the bigger bigger picture to me is he who [clears throat] owns the gold makes the rules. Well, from an Austrian perspective, we don't think of of capital [clears throat] as money. We think of capital as means of production. In other words, he who produces the most earns the most gold. So, if you go back what a few, you know, century and a half or so, you had Great Britain. Number one, gold was held by the UK and then it shifted to the United States and the United States had the most gold. And now the production center is China and the center of gravity for gold is China or Asia. And so it only makes sense that you would follow where the gold trade would be maximized. If you go back UK, it would be London. Then it went to New York and now it's going to go to Hong Kong. So it all fits to me in the bigger picture. I mean, that's how I put the puzzle together.
Yeah. So, someone a very smart sort of macro analyst said, I always remember him making this comment to me a couple years ago when I was asking about gold and he agrees with much of what you were saying, precious metals. He agrees with much of what you were saying, but one one of his comments was when central banks are in buying, it makes me a little uneasy because I never know if they're buyers or sellers. And we saw Turkey selling when it came under pressure uh, you know, in the wake of the Iran war. Has has something changed though? Has has the issue with distrust of the US dollar and the weaponization of the dollar sort of changed that scenario and made it made it much more likely in your mind that central banks will be more steady buyers and holders of gold?
Yes. Generally speaking, yes. But I want to give the other side of the argument because when you have a critical need, let's say it's food and the dollar's demise is nigh, the idea that wait, I'll pay you in gold carries a lot more clout. I mean, it's now I mean, not always, but now it does. So I look at it as both. It's sort of having your cake and eat it too. If you have enough cake, you can give some away and still, you know, maintain your position, so to speak. So, you know, I'm not trying to talk out of both sides of my mouth, but I could see, let me let me look at a thought experiment very briefly. I mean, if we get in a position where things get really tense, I mean, you know, two or three X from where we are now, war-wise, foodwise, oilwise, there could be instances where I would accept anything but gold for this transaction. Not saying that will happen or would happen. It could happen, but I would not rule it out. I mean, if you go back to the 30s when it was illegal for the US citizen to own gold, it still uses international settlement.
Yeah. And in that case, I I understand what you're saying. It's it's why people want it, but it's also why they may be forced to sell it because no one's accepting anything else. So, that is your that is your only collateral. That makes sense. So, it's something to keep in mind. Um hopefully the circumstances you described don't we're not living in that environment where that would be the case because then then we have a a world of trouble. So let's talk about silver compared to gold. Um because you you think silver how how do you see the performance right now? Is there more opportunity in silver? How are you thinking about that?
Oh boy. [laughter] I'm sorry I have to laugh. Silver's always been a very volatile market and corrections are normal but the supply structural supply deficits continue while the investment demand continues to expand. So I still believe silver has its biggest move ahead but [clears throat] going from 121 in January this year to below uh 60 the last uh few trading sessions is definitely hard to take for anybody even as seasoned as I am. So, one of the big investor mistakes made is they chase the market. They buy silver too late
and sell too early. I mean, I've said numerous times, but it bears repeating the main function of a bull market is to shake off as many participants on the way up as possible. And I think this major, this very large correction, Maggie, has shaken off a lot of late coming silver bulls and maybe some that were in the market for some time. I mean, anyone, you know, in their 60s and beyond that's had a hedge position, maybe they listened to me 20 years ago, followed my work or others like me and had a silver position and watched it go past a hundred and didn't take any profits are looking at themselves now looking at, you know, next opportunity I have, I'm out. I can't take it anymore.
Yeah. Or or just wisely taking partials because they need the money, right? I mean, like, there's nothing wrong with
Well, a bit of feather in my cap, but don't be brief, but I put out a PDF file for all my paid members well before the $100 mark and said, "Tranch out $80, sell 20%, $100, sell 20%, 120." And I I warned them not to sell at all. Uh, even though if they, you know, of course, it's a personal choice somehow.
And and everyone needs these are questions to ask your financial advisor. That's what we're trying to set you up for.
guidance only. It wasn't a command, but that's, you know, one of my purposes is to provide, you know, guidance on these type of issues. And then, as you said, you know, I'm not a registered investment adviser. I'm a financial newsletter writer. So, then that's
Yeah. important when someone's saying who's been watching markets for a long time, hey, listen, it's okay to take a little off the table because then then that's what you know, it's funny because we've talked to um the uh advisorss in in our network who say people hate they they see that tax bill and they're like, I don't want to pay that a cap gains or that. But, you know, there there we have to learn how to sell as well as buy. So, what we're going to we'll cover that elsewhere, but we'll we'll do a segment on that because I think it's it's going to be really important if we're seeing these swings. Let me ask you about about shaking out though. Are there different kinds of speculators in the market now that are creating more volatility because we know some institutional fastm moving um players were in silver. There were a lot of reports uh that that they were also participating. They have the ability to move big amounts of money in and out. Um is that different now or has that kind of always been the case?
pretty much always been the case. There's like what's called delta hedging and delta hedging is leverage on leverage. So the futures market is leveraged roughly five to one for most commodities. But then you have options on futures which is a leverage on a futures contract. So what delta hedging does is there's algorithms out there that says I need the option market to close under $50 on options expiration. So the algorithm says you've got to sell this much paper silver to drive the price down below 50 bucks. And you can almost set your watch on that every month that you're going to see the longs, the people that are bullish silver get taken for a few pennies to a few dollars to get it under a certain price to make sure that the professionals are basically making money on it. And then there's gamma which is another level of uh of [clears throat] volatility in the silver market. But no, these things are highly highly traded in, you know, the quants, the mathematical guys that, you know, went to better school than I did that put together these uh formulas to basically manipulate the markets. That is the short term. I want to be clear and I will maintain my position from the get-go that the long-term trend in a market cannot be manipulated. Within that trend, you certainly can move the markets around. The options expiration is a very very good data point that I would use in a court of law. If I was asked by the authorities, you know, is the market manipulated or not? I say at times it certainly is. Here's the proof.
But I love that comment that you can't manipulate the long-term trend. And I think a lot of the people here, you know, this is where you have to understand what kind of investor you are. And if you are if you have a longer term view or mid-to long-term view then then you know don't get too distracted is what I hear you saying on some of these shorter term swings. Keep your eye on some of the longer term fundamentals you're talking about. So I I think you touched on this briefly but I just want to underscore this supply versus demand right now for silver. How do you see that set up?
Yeah, it's been in our favor as a silver bull for quite some time. I mean the supply is roughly a billion ounces a year, 850 million ounces mined, 150 million ounces recycled and the demand is greater than that and it es and flows but for the last five, six, seven years it's been above and beyond that which means we're eating the above ground stockpile. The other thing is that the demand for silver from the industrial side 25 years ago was 35% of the market. Today it's about 60% of the market. So that will continue. So we've got kind of an underscore of uh kind of like a stock buyback, Maggie. That's how I like to put it in the financial thinkers, you know, because if you're buying back your own stock, it's because there's no better investment. That industrial demand does change. I mean, in a big recession, you probably wouldn't quite have have quite as much demand for silver for industrial purposes,
but you know, if it goes down 1% or something, you're still looking at 59% versus 35% 25 years ago. So, it's significant and the monetary demand will continue. I think it's building a foundation. Gold has definitely led the way this time. And that's typical at the end of the great inflations. So what's different today I think is that silver now has those two powerful demand drivers and most people are aware of both [clears throat]
and it's traditional money most of the world and the word money and the word silver is the same word in all the romance languages that's like 14 languages I mean people that say that silver isn't money have their right to that opinion but if I go to Mexico and say plat is no plat I'm saying silver isn't money or silver isn't isn't silver know what I'm talking about So, you know, it does play a monetary role. And of course, as gold continues, what what we discussed earlier, silver's going to have a kind of a backup position because gold could get out of hand to where the most middle class citizen in any country, that's just too much too much of my paycheck to buy. Silver I can still afford. And that's what happened at the end of the great bull market in 1980. people moved to silver because it was more affordable.
That's a great point because when you look at that chart, it is hard. I mean, if you're trying to buy an ounce of something or if you're trying to buy physical, um, you know, uh, you do that there is a psychological, I think, component to that. Um, so in terms of the demand, there's some talk about maybe, you know, we know China is the 800 pound gorilla in this and there's some talk of a pullback after overinvestment on their part in things like solar and all of the buildout they did to try to try to increase their energy independence. Is that is that significant? Is it at the margin? Do you see that?
I'm looking into it and it's really tough to get data. I mean, I want to, you know, I'm a numbers guy. I'm degreed engineer that, you know, I'm very focused on objective reality rather than projection on, you know, my biases. I don't know. I suspect that the amount of physical silver that was demanded in the Shanghai Metals Exchange and the Shanghai Futures Exchange at the end of last year and early into the first month of this year that they perhaps I say perhaps stockpiled enough silver physically to meet their demand for a significant amount of time. If that's the case, then they will come back in the market as it quiets down, which it's now done. So that's again a wild guess really, but it makes sense if you watch the price movement and you watch what the international flows are. So that's part of it. The other part is that the Chinese got into the I won't necessarily call it an algorithm although they probably use them at the top tiers but they got into paper speculative mode and if you recall there was a Chinese gentleman that definitely had a huge position in futures in silver and basically kind of cleaned up and then of course fast way to make fast money in the futures market be it cotton cocoa or silver is to short at the right time
and he did. So that move in January, again, I gave warnings ahead of time, guidance ahead of time. Look, that parabolic move is something you should take advantage of. Having traded futures for a living, uh, I lost a lot of money to get good at it. [laughter]
As every good trader says,
well, I learned that when selling the strength and don't expect to hit the top. That's why I averaged out on the way up. I did not personally. Um but many of my uh members did. I was on the phone ready to do it and I just backed out for whatever reason. But anyway, back to you.
Well, well, which is which is worth a psychological segment on on you know the difficulty of selling when you're right as well as knowing when to buy. Uh the other thing that that bubbled up when I was uh I've been looking around I've noticed I was found interesting is whenever we see and this isn't sort of in this moment but whenever you see upward pressure or sustained upward pressure on prices uh you see all sorts of people trying to figure out how to get around that and there's some talk about some producers and buyers trying to manufacturers trying to figure out how to substitute or R&D around thrifting or combining cheaper metals with silver to offset costs. Sort of the same question. Is that a significant trend that you're watching or is this something sort of at the margin when we are at those really parabolic moves?
It's definitely uh worth looking into. I did an interview on that uh very recently and you know will copper substitute in
for the solar panel market. The answer is undetermined yet. uh if it does become viable where copper is wrapped by silver for example
um and it does you know help thrifting help the overall cost of a solar panel >> we're probably about four or five years out for that to come into the mainstream manufacturing process but nonetheless know it's worth looking into and I do think um that it's certainly possible perhaps probable but I wouldn't uh stop being a silver investor just because you know copper is going to replace silver. It will never be able to replace silver in a solar panel one for one. In other words, a solar panel will always have some silver component. Uh the problem with copper is it corrodes and when silver corrods the conductivity is equal to what it was uncorroded whereas the copper is not the case. So there's a lot of things about perhaps a company comes to the to the four and it's looking good and it does a good job but those panels only last two years instead of 20 years. Now they problem not saying that would happen but there's a lot to look into especially in that industry. So if we back up a moment and say you know let's say that the Chinese stockpiled silver below 80 as an example and of course it went to 120 but they kept their hands in their pocket pockets and only held the paper contracts. Now, you know, silver at 60 and they're buying quietly. Perhaps the most efficiency for them is to buy silver relatively cheap. So, the cost of the panel isn't 30% when it's at $100 a ounce. And now it's back down to perhaps 20%. Their margins are good and they have an advantage over everybody else because the production line's already set up with silver and they can not undercut, but their price offering can be good because they planned ahead.
Yeah, there's the power of planning ahead. the playing the long game cannot be, you know, understated that the advantage that gives you. So if if the supply dynam demand dynamics and the fundamentals are so bullish, why aren't we seeing mining stocks respond?
Oh, that's a great question and it's so tough. I mean, because that's primarily what we do at the Morgan Report. Uh, and it's frustrating. It's frustrating to me. It's frustrating to my members. Some have done okay. I mean, they've done you know equal to in most cases the top tier cashrich unhedged companies I feature as 70% of the portfolio's guidance have kept up but you don't buy mining stocks to keep up with the move in the metals you buy mining stock because you want the leverage
you buy it because when gold goes 10% your mining stock goes up 30%. If gold doubles you get a four to sixfold increase in your mining company. So the reason for it is this, the best I can determine. One, the ETFs have taken over a lot of actual physical buying. So now a lot of physical metal that's bought, I'm not saying there isn't a good demand for physical, we just discussed that. But a lot of institutions and even uh retail rather buy an ETF like the SLV or GLD rather than buy gold because it's a click away and it represents the price of gold. But institutions buy gold first, then they buy the ETFs. After that, they start to buy the large producers. And we have seen that a little bit, then they buy the mid tiers, and finally the juniors are bought primarily by retail because these people come late to the party. They're kind of at the tail end of the bull market and they want to buy a cheap stock. So historically, the biggest percentage gains do come later in the cycle. I'm slightly encouraged because in the first two legs of the bull market, we are in the third leg up right now. In the first two legs, the miners actually can lead oftent times what the metal does. Well, geez, the miners are going up, but gold's not doing anything. What's happening? Well, they're signaling that gold's ready to move. And we just saw that very recently that the metal stocks just basically refused to go down further as both the gold and silver did.
That's a slight clue. I'm not going to hang my hat on it, but historically again, the biggest moves in the metal stocks come in at the end of the cycle. I'll give you a real quick hard learn lesson on my own part. When gold peaked in January 21st, 1980, I was like 27 years old and I sold my gold at not at the top, but it started coming down 700. And I also sold most of my gold stocks. Don't think I had that many about the same time. And then the gold stock kept going up and up and up and what is going on? Well, you know, I studied the stock market and what it was was earnings. Stocks supposedly move on earnings. And of course, if gold was at 300, biggest all-time high in December of 1979, and now you're halfway through 1980 and the average price of gold is 600, your earnings are just tremendous. So the stock price is going up. PE it's you know earnings are great. So the stock price kept going up. So the stocks peaked about six seven months after gold had peaked. So I don't want to make you know lose sight of that hard learned lesson. So that's something to bear in mind as well because I don't want you know my members to do something that you know I had to pay a price for.
Yeah. So two two last questions. Uh in terms of the price action now, does it feel like silver and gold have found a bottom here or and are consolidating for a move higher or are you still nervous that we're we're in some downside chop?
Yeah, both. I mean, right now I put out an update that, you know, here's the buying zone and here's the selling zone. Obviously, we're in a buying zone for both gold and silver. So, rule of thumb, I told most to buy silver under 62 or lower and gold under 4,000 or lower. What's the worst case? The worst case scenario is that the commodity touches the breakout point. This often happens in in the commodity sector. So, the breakout for gold was round numbers 3500. The breakout for silver was 50 or 52. Could silver trade at 52 the ounce? Yeah, it could.
Doubtful. But if it were to get to that 50 handle, what you would see is that it would what I call kiss a quick. It would just touch that level, maybe two paper contracts got sold on paper only. No physical dealer is going to do it because it's momentary. It's five minutes in the whole trading day.
And then the market starts to move back up. Same thing with gold. In other words, is it possible? Yes, probable no. If it did happen, it would be such short duration in the futures markets only that it really be meaningless from the long-term perspective. Did those trades occur? Yes. Did it hit that price? Yes. In 1980, when silver hit $50 a ounce, it only stayed there for about three minutes. Most people make a case, oh my god, it went to 50. It did. It went to 50. It did not stay there. Now at that time I think the CBOT and the New York markets had different uh closes and I think in the Chicago it did close at 5250 on their exchange. But I don't want to get into the minutia too much but I think it's important for people to understand you know a buying zone any professional wants to buy within 20% of the bottom and get out within 20% of the top. If you're looking for the exact bottom you're playing a fool's area.
Yeah. And I feel like because we have kind of real-time data in our hands on our phones, like everyone thinks they can do that. And when you when you talk about it hitting for three minutes, I think we all always think of that great scene from Trading Places where they're carrying them out on the stretcher and everyone's screaming like it could it could be so quick you can't even get back in the day with the paper orders, you couldn't even get it executed because it was so brief. So the idea that we can all pick the exact bottom or the exact top I think is a trap that a lot of us get pulled into now with with the sort of speed of information.
Well said. I agree.
Yeah, it's a tough one. So what should we leave people with? What what what would you like people to sort of the audience to walk out of here uh thinking about when it comes to gold and silver?
I think you should have a objective relationship. I think that anyone who understands the monetary conditions of monetary history understands they should have exposure to the metals. So that's number one. How much now? Too much of a good thing is too much of a good thing. I would suggest as Jim Rickards and many other notables in the financial newsletter industry have stated 10% is probably enough. And once you do that, do it without margin. Do it either by physical metal, which is what I recommend, but if not, have good exposure. You could use ETFs. Again, I prefer physical. And if you want some exposure into the mining sector, then you want to look in the top tier cash companies. The royalty companies have a much superior advantage to moving higher than a general mining company in most instances. And once you have that position, relax. because it's sort of a like putting fire insurance on your house, you know, you don't really maybe like writing that check and you hope you never cash it, you know, whereas in the monetary realm, maybe having that gold position, you know, five or 10 years down the road, you're very glad you had it and you can cash it out.
So, I just like the idea of taking an approach that puts it into the correct perspective of diversification, sound money principles, and the idea that you sleep well at night. You don't want to have so much exposure that you can't sleep. And a lot of people hear myself, Jim Rickards, some of the notables, Martin Armstrong, whomever, and say, you know what, I've got to load up on gold. And none of us have said that,
but they understand, oh my goodness, I've just got a reality check on how the money system works, and it's not right. It's not ethical. It's not fair. And I'm going to make up for it by loading up. And they make a mistake.
Yeah, that's great advice. That's great advice. Um, David, always a pleasure to catch up with you. Thank you so much for being with us today.
Maggie, I have fun with you. Thank you so much.