David Morgan Explains Why Silver Is Catching Up, Why It’s Broken Out and Where It Goes From Here?
- For those of you following the silver market, David Morgan’s opinion is a must read. Silver is testing the US$25/oz level and will likely breakout this week. It may hit U$30/oz in less than 18 days according to James Turk. I am in agreement with this assessment. I see silver as pausing 1-2 weeks after hitting US$30/oz before launching towards the US$50/oz level ie all time nominal high. I do not believe the bullion banksters have the power to stop silver from hitting US$50/oz by early next year!
David Morgan Explains Why Silver Is Catching Up, Why It’s Broken Out and Where It Goes From Here
Introduction: David Morgan is a widely recognized analyst in the precious metals industry and consults for hedge funds, high net worth investors, mining companies, depositories and bullion dealers. He is the publisher of The Morgan Report on precious metals, author of “Get the Skinny On Silver Investing” (Morgan James Publishing, 2009), and featured speaker at investment conferences in North America, Europe and Asia.
Daily Bell: David, welcome back and thank you for sitting down with us today. Remind us about the difference between silver and gold both as precious metals and money metals.
David Morgan: ”The major monetary metal in history is silver, not gold.” – Nobel Laureate Milton Friedman in an interview with James Blanchard at the New Orleans Investment Conference. November 7, 1993. The above quote is fact of monetary history but few in the West study or know silver’s history. Yes, gold is money but silver has been used as money more often, in more places, by more people than gold ever has.
Daily Bell: Why has silver been known as the peoples’ metal?
David Morgan: Because of value per unit, as this interview takes place gold is about $1400 US per ounce and silver is about $25 per ounce. Since most transactions are small daily transactions by all people it is known as the peoples’ money. Silver buys your small items—food, water, energy, and clothes for example. Large settlement purchases would be done in gold.
Daily Bell: What is the gold/silver ratio and where is it today? Has it closed the gap since we last spoke?
David Morgan: It is the price of gold in dollars divided by the price of silver in dollars. As of this interview that would be 1400/25, which is 56. The ratio has moved from 68 to 56 in the past six weeks and it has moved in favor of silver since our last interview.
Daily Bell: Since the historical range is said to be 15/16 to one (silver versus gold) it sounds like there’s a long way to go. Does price manipulation continue?
David Morgan: Yes, but a spokesperson for the CFTC has finally come out after three years and I expect some formal announcement soon. Bart Chilton’s statements so far are straight to the heart of the matter and our readers are encouraged to look at his statement on the CFTC website.
Daily Bell: Let’s return to the previous question. Has silver broken out?
David Morgan: Yes, both gold and silver broke out in early September 2010. Silver has now achieved a new nominal high over the March 2008 high of $21 and this has sent many investors to take another look at the silver market.
Daily Bell: What countries are most hospitable to silver mining today? Mexico and Peru you mentioned last time we interviewed you.
David Morgan: Those two countries are normally fighting for first and second place as leading silver producing countries. As the global economic picture continues under stress all investors need to consider that what might be hospitable today may not be so tomorrow.
Daily Bell: Any important silver mining companies you want to mention?
David Morgan: I prefer to leave that to my paid membership service The Morgan Report that can be accessed at my website: Silver-Investor.com. We do look at more than the silver market; for example we were the first to begin reporting on Rare Earth Elements.
Daily Bell: Let’s ask some technical questions. Where does silver go from here? What are the best investments to make throughout the business cycle, and do they change over time?
David Morgan: On a very short term basis gold and silver are overextended on a technical basis and could pullback. On a longer term basis silver and gold are going far higher in paper terms in any currency you wish to name. Addressing the second question, I will make the assumption you are restricting this to the precious metals. On that presupposition, the best investments very early in the cycle are penny mining exploration companies, in the middle part of the cycle the best is mid tier producers to top producers, favoring the mid tier as they as a group are taken out at premiums by larger companies. At the end of the cycle the mania/panic phase almost anything with gold and or silver in the name will fly like crazy and fundamental worth means very little. This is the very dangerous part of the cycle but can be very rewarding.
I wish to add that this is based on previous cycles of all markets, but with the currency crisis that is now being experienced globally it may not be prudent to sell physical gold or silver for your local currency until the financial system is on firm ground.
Finally, after the financial system does stabilize there could be a time when your gold (silver) would be able to purchase well run businesses (like the Dow?) for very favorable prices.
Daily Bell: Is there more recycling? Is silver uneconomic to recover?
David Morgan: There are two main studies on the silver market and they disagree on this point. According to one silver recycled in 2009 was the highest ever, while the other study claimed it was off noticeably. I am bias to the bullish case because almost all recycling was a result of silver halide (film) processing and that has fallen off dramatically the past several years. Many applications that MUST use silver have such a small but necessary amount that it is uneconomic to recover. This is why silver is “consumed” because this type of silver usage does end up in landfills.
Daily Bell: How much is the industrial demand for silver?
David Morgan: Basically 50% of the market or slightly more. It continues to increase as silver’s use in solar, water purification, and food processing/preservation will increase dramatically over the next decade.
Daily Bell: Is the silver market in a deficit situation?
David Morgan: No, the deficit ended in 2007.
Daily Bell: From 1990 to 2007, according to the best recognized studies on the silver market, about 1.5 billion ounces of silver were eaten out of stockpiles. You agree?
David Morgan: Yes, it is pretty apparent by looking at the above ground supplies in the public domain.
Daily Bell: How much is silver increasing? Two percent per-year increase?
David Morgan: On a net average basis from roughly the year 2000 all mining activity (base metal and silver) has increased between 2-3 percent per year.
Daily Bell: Was there a slump in global silver production in the 1990s?
David Morgan: I would state it as the mining industry was fairly flat through the 1990 to 2000 time frame. Once the commodity cycle bottomed around 2000 we have seen a general increase since that time until present.
Daily Bell: What about future production?
David Morgan: Future production will peak at some point and due to several factors, energy costs, environmental considerations, and protectionist attitudes in the future.
Daily Bell: What do you think of the current economic crisis? Are Western countries handling it well?
David Morgan: This is the financial crisis that I and several others in my field have predicted for so long. It is proceeding pretty close to how I have expected it to proceed and the Western countries have handled it to the best of their ability. Which means they have ignored the fundamental flaw in the system and pretended they know what they are doing.
The world is swimming in debt and so far the solution is to borrow more money, or increase the debt even further. That is saying you can borrow yourself rich, and that can be done until you cannot make the payments anymore. All indebted nations are holding interest rates low so their debt servicing is “manageable” but in reality it is mathematically impossible to service the debt but very few in official roles (government) will ever admit this startling fact.
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