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2013 Outlook: Will Fed QE3 and QE4 Cause 2013 Price Explosion?

Exclusive Interview with Silver Expert David Morgan and Much More

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Announcer:

Welcome to Money Metals Exchange's weekly market wrap podcast. Helping precious metals investors during these treacherous times. Now, here's this week's market wrap with commentary and analysis from the fastest growing precious metals dealer in America, Money Metals Exchange.

Bill Gross:

The taxes on all Americans have gone up here over the past few days. The average American wage earner earning $50,000 a year will pay $1000 more in taxes over the next 12 months. Not only have they not reduced spending, but they've increased taxes for basically 100% of Americans. We think they have to reduce spending by a good $200 billion to $300 billion a year and that's just a down payment. It's a fairly pathetic situation and a situation in which the American public is having less and less faith in terms of their ability to act.

Mike Gleason:

That was the voice of Bill Gross, manager of the world's largest bond fund. He, of course, was weighing in on the non-solution that Congress churned out this week with regard to massive U.S. fiscal imbalances.

This is Mike Gleason, and I want to welcome you to our first weekly market wrap of 2013. We have some really important information for you this week.

Later in today's broadcast, you'll hear more on Bill Gross and his outlook for precious metals.

We also have an exclusive new interview with silver guru David Morgan. David's insights are highly sought after by mining industry CEOs, hedge fund managers, and retail investors – be sure to pay careful attention to what he has to say.

The big political news that ushered in the New Year, the deal to avert the so-called fiscal cliff, appears to have solved nothing at all. In fact, the Congressional Budget Office itself says it will make things worse!

The haphazardly pieced together bill will add nearly 4 trillion dollars to federal deficits over 10 years, according to the CBO. Independent analysts think the legislation could produce closer to 5 trillion dollars in additional red ink.

No spending cuts. No entitlement reform. Just more government. Much more than we can afford.

Congress plans to continue borrowing 40 cents out of every dollar it spends. The Fed will continue to help facilitate all the spending excesses, as it pushes ahead with 85 billion dollars in new bond buying every month with a vow to generate a price inflation and job growth at all costs.

Remember, QE3 and QE4 announced last year haven't even begun to be implemented, let alone work their way through the economy. And we don't know what other tricks Federal Reserve officials have up their sleeves for 2013.

We are fairly certain that the dollar and dollar-denominated bonds will be vulnerable in the new year, and beyond. U.S. Treasury bonds fell 1.2% to multi-month lows on Wednesday to kick off 2013. Stocks surged and precious metals rallied.

Stocks could continue to rally nominally. But without real growth in the economy, you can't expect much in the way of real returns.

What could deliver some real pop in this environment however are precious metals. Especially as the smart money – and eventually the public – bails out of sinking bonds and cash, and into the alternative safe havens of gold and silver.

Here's what one analyst has to say about Bill Gross's recommendations...

Analyst:

He has a very wide following and obviously bonds the largest bond funds. You're probably going to see a lot of capital and smarter capital I think shift over out of some of the stocks, out of some of the bonds and maybe into some of the precious metals. I think that the Fed and this is what Bill Gross thinks, is that they're going to go for full throttle. They're going to keep pumping money into the system. They may even have to ramp up some of that money coming in with the problems with the fiscal cliff.

Something that gold is also seeing right now is that the CME has lowered margin requirements so that's going to attract other outside investors as well. I think that I have to agree with him and I really think gold and I think silver are going to be some really good places to be here in 2013.

Mike Gleason:

Gold and silver did get hit on Thursday and Friday morning after Minutes from the Federal Reserve's December meeting showed that some policymakers favor putting the brakes on Quantitative Easing later this year. But we doubt the Fed will slow down the printing presses until official unemployment falls significantly.

The fact that payroll taxes are going up this year represents a headwind for the job market. So despite their recent statements look instead for the Fed to end up introducing even more stimulus to try to counteract the tax hikes.

In any event, we can count on Congress to spend much more than it takes in. Trillion-dollar deficits as far as the eye can see assuredly aren't bullish for the dollar. But they ARE bullish for precious metals, despite what might be happening in the short run.

Now, for more on the outlook for precious metals in 2013 and beyond, here's our exclusive interview with acclaimed industry insider, David Morgan.

Mike Gleason:

This being the start of the New Year, we felt it was no better time to bring in our friend and colleague David Morgan, editor of the renowned newsletter known as " Money, Metals and Mining" to get his thoughts on what 2013 will bring for precious metals investor. David Happy New Year and thanks for joining us.

David Morgan:

My pleasure. It's great to be with you.

Mike Gleason:

When we spoke to you back in October at the Silvers Summit, I remember you saying you thought 2013 was going to be a strong year in the metals. As 2012 came to a close we had a bit of a pullback after the nice rally that occurred immediately after Obama's re-election. Do you still have the same bullish forecast for metals this year now that we've experienced the recent mini sell-off?

David Morgan:

I do. I think the fundamentals are probably better than they've ever been for precious metals. Obviously, the price has gone up substantially over the last decade or more for both silver and gold. Silver has actually outperformed gold. I'm looking for silver and gold to continue being in a bull market.

Mike Gleason:

We've been building a base for quite a while now. This consolidation period has lasted now for the better part of the year and a half, longer than probably many people would have expected or liked to have seen. But with bull markets, like the one we're in, these consolidation periods are not only common, but perhaps are even healthy in the long run.

David Morgan:

Healthy and necessary I would say. We can talk about manipulation later, but I looked at it after the big run-up. I was frankly a little hesitant to recommend silver above the $30, $35 particularly on the run up in early 2011 where we made a move basically from the $26 level up to $48 with very little corrections and it was really a spike high, a parabolic move.

There was a lot of enthusiasm in the silver market and a lot of people, I won't name names and some that are pretty renowned, metals analysts were telling me I was wrong and all this kind of stuff that I was clawing the top at $48 and I got within about two or three days of the exact top. I think anyone calling the exact top is ridiculous, but I did get very close to the top.

Those trading along with me, for the trading only portion of the portfolio, I emphasized that because I keep a core position at all times. It was trying to take some profits, and we did and of course, we haven't seen that high again. When you get the move, it does take a year and a half to actually two years to work it off.

I think we're about the end of the consolidation now. I think 2013 will be a good year for the metals, not a banner year, but it will be a good year. I do think you're going to see the $50 level tested at least once, if not a few times during 2013 for silver. I expect to see gold over $2,000 in 2013 rather easily.

Mike Gleason:

Many investors including ourselves might often be irritated by the apparent disconnect that we see between paper markets and the physical market, this past month being a primary example of that. In the face of massive paper selling which drove the price of silver down some 10% just a few day period, there was significant physical buying in the retail market and we certainly experienced that. We're starting to see some real tightness now in some of the secondary market products, which is a good bellwether like 90% silver coins and gold Krugerrands. Obviously, the bullion market is a small part of the overall market, but there's similar stories coming out of Asia where there's lots of physical buying of gold and silver bars there and it's been very strong during the recent price drops on the COMEX. Do you see an eventual end to the paper market being the primary price setting mechanism for metals globally or is this sort of thing just going to continue?

David Morgan:

It will continue until it ends and I do expect it to the end. We've only seen a precursor to what will happen. If you go to the financial crisis of 2008, both gold and silver manifest more in the silver market than gold since it's a smaller market.

But you really had to two markets at that time for a brief period of time...you had the retail market that was about $13 or so when the paper market was around $9. So you had a 30% to 40% premium if you were going to buy any retail silver, be it government stamped coins like a Canadian Maple Leaf, and so on, and this is silver. Gold premiums were also substantial with, but not nearly as much as silver was.

That was a very, very tight market in physical supply. You had the paper market. Now to be fair and objective, if you were willing to buy commercial bars you could get them at the paper price in fact, yours truly did. I bought three 1,000 ounce of silver bars. It was not exact 3,000. It was three bars and none weighed exactly 1,000 ounces, but rough numbers 1,000 ounces. I basically arbitraged it because what I did was I set up to have those 3,000 ounces converted into privately minted coins that I still have.

There will be a disconnect and no one knows when. I think a lot of silver bulls and gold bulls are waiting for that to happen. I do think it will happen. I don't know exactly how it will or when, but I think you will see ... again it's already taken place on a small level, but it will happen in a way that it will be a very huge discrepancy.

The first thing to look for if you want to see when it's taking place is just to watch the market closely. When you see a backwardation, backwardation simply means that the stock market to get it today price is higher than the next month out in the futures market or any month out in the futures market. This happens in all commodities it's not just the precious metals. Normally it's about a three-day event.

You see silver price higher on the spot market then the next month out and then month after that and the month after that. Usually it takes a few days and then the market corrects, and then you get a normal Cantango, which means that the spot price is lower than the next future month and the futures month beyond that.

When you see it go for a week or two and there's some backwardation where you have to pay more for the real metal now than some hypothetical price in the future, that will be a very, very strong signal that something is wrong in the silver market. It could happen the gold market, it could happen the same time. It could take place again in any market, but the metals market particularly is where I expect to see it. I do think it will take place in silver before gold although you cannot rule out gold having the same situation.

Mike Gleason:

Yes, that will certainly be interesting indicators to look at as we progress here through the bull market. Now on a similar note, you hinted on manipulation earlier. That's a very popular topic among silver bulls and many want to go immediately to the conspiracy card. You've always taken a more measured and level-headed approach to the idea of manipulation. Share with our listeners your thoughts on that. Do you believe the silver market is manipulated? If so, how prevalent is it and how great of an impact doesn't actually have?

David Morgan:

Yes great question. It is one, and there are very strong opinions on both sides. First of all, let's stay with the facts. The fact is that the Working Group on Financial Markets exists. Look it up on Google.

The Working Group on Financial Markets it's basically the head, I'll call them for lack of a better word, head honchos of the SEC, the CFTC, Treasury, the Head of the Securities and Exchange Commission, the Head of the Stock Exchange. All the power brokers that exist in the financial markets composes the Working Group on Financial Markets.

Their edict is they can manipulate markets. Now they don't usually manipulate they can come in and in their control they use the word that they can come in and buy, sell do whatever is necessary as they deem fit for management purposes. That's again my word, but this is so that the financial markets do not get too over enthusiastic or too big of sell-off so they can manage things so they don't get out of control. This is a fact. This exists. There is no market that is exempt from this.

Just by a cursory look at the facts, someone can spend a half an hour on the Internet looking at what I just said to prove to themselves, one-the fact that it exists and two-that they have carte blanche on any market. That would highly suggest that there could be integral in the silver market.

Now might take on the overall manipulation is this. Yes, silver and gold and many, many markets are manipulated. However, specifically to the silver market, the overall trend can't be manipulated. What I mean by that is that there's enough of a free-market left in silver and the commodities, generally speaking, that buying pressure is greater than selling pressure overall and that the overall price trend is significantly higher now in real terms than it was a decade ago. The trend is clearly up. The trend cannot be manipulated.

However, within the trends, the price can be manipulated from time to time and it is. There's no reason for example, what happened on February 29 in the leap year where silver sold off a substantial amount of silver in a very short period of time other than to drive the price down. The only thing that causes the price to go up or down in any market is buying pressure or selling pressure. There's more buying pressure than selling pressure then the price rises and more selling pressure than buying pressure the price declines.

First of all, if you own silver, why would you want to sell it at a loss? You wouldn't. Since the futures market and the derivatives markets allow you to profit by a price moving either up or down there's a profit motive. On top of the profit motive, there's a psychological motive. The psychological motive is that gold is a barometer on the overall health of the US economy or really better stated if gold the barometer of the overall health of the economic system on a global basis, which is really what it is, and silver is gold's poor cousin or poor man's gold. They both react to the uncertainty in the marketplace, especially in the overall economic health. You would have a motive to keep these markets managed.

"Oh they start running too high." Let them run and this is typical especially of silver, where these guys that do know how markets work and do have the ability and authority and at law can manipulate markets. They'll let it run up. They'll let the last guy get his last nickel in and then they'll take the market down. It's very psychologically unsettling. Especially for the few at the top that got in it at silver at $40, $42, $44, $46 and $48. Some of those people are probably still holding, but they're probably pretty disgusted with the silver market after a year and a half. This is what happens.

It's as much psychologically as it is profit motivated and that's how I see it. I don't see it any other way. People say it's conspiracy or it's this or that. Well you can name it whatever you want. I mean look at the facts for yourself. Ask yourself why would anyone want to sell a year's supply of silver in a couple of keystrokes other than to, one, control the price, or two, create a psychological kick in the head so to speak or both?

Mike Gleason:

Excellent answer. As you mentioned these sorts of things are going to happen and that's why you've got to just hold onto your core position and try to not let the emotion get into it. Because it's going to wear you out if you try to time it or try to chase the markets, it's just never going to be a winning proposition.

In closing here, I wanted to just address some of the other metals here, platinum, and palladium. We are in a currency crisis and many have said that that being the case "just stick with the monetary metals" if you're looking to invest in precious metals -- that being gold and silver since platinum and palladium don't necessarily have the same link to money as their cousins do.

Both had great years in 2012 though. Platinum and palladium both outperformed gold slightly, mainly due to supply disruptions in certain parts of the world where it's mined. Do you foresee the platinum group of metals being a good investment going forward for investors? Is that something people should be considering?

David Morgan:

I do. I wrote about it briefly in the Morgan Report for January and it will be published this upcoming weekend. Briefly platinum is 30 times rarer than gold and it is 90% coming out of South Africa. There's lots of problems in South African platinum mines right now. If you've got a 90% supply potential with disruptions and the fact, let's just stick to the facts again, where the platinum mines in South Africa basically are at a push or a loss of current platinum price that is pretty clear that the upward price pressure on platinum exists.

Palladium is another platinum group metal. Either one, I think is good. It's hard to call which one little better than the other. Palladium and platinum can be switched for the auto catalyst application. Platinum has more usage in jewelry than palladium does. It's a very, very tiny market. I wouldn't put a lot into it.

People are worried about confiscation and that kind of thing. It's never been any confiscation in the platinum group metals. I mean it's such a tiny, tiny market that if you were really concerned. Another thing I like about platinum is that the ratio is favorable to platinum right now. Since platinum is 30 times rarer than gold it usually has a premium over gold.

Right now, it's selling at a discount to gold. I think if you wanted to buy gold cheap, you could buy platinum and then later on when platinum corrects and goes over gold and sells at a premium once again, you'd be able to take those same platinum coins and trade them for gold. You'd be buying gold at pretty much a discount in my view. That presupposes that platinum will sell at a premium over gold at some point in the future. I believe that that's almost a certainty.

Mike Gleason:

It's been almost a year and a half now that gold has been priced higher than platinum, and that's certainly an anomaly over history. That may reverse itself and may present a good buying opportunity for investors. Well, David thanks very much for your time. We appreciate your insights as always. We hope you have a happy and prosperous New Year and we look forward to speaking with you again down the road.

David Morgan:

Well very good. Thanks so much for the interview.

Mike Gleason:

That will wrap it up for this week. Don't forget to tune in next Friday for our next weekly market rap podcast. Until then, this has been Mike Gleason with Money Metals Exchange. Thanks for listening and have a great weekend everybody.

Announcer:

Thank you for joining us for this edition of the Money Metals Exchange Weekly Market Wrap. Be sure to come back next week, and don't forget to subscribe to our weekly podcast through iTunes. For answers to all of your questions, or to discretely and securely buy or sell gold or silver coins, bars, and rounds, call 1-800-800-1865. Our knowledgeable and no-pressure specialists are standing by between 7:00 a.m. and 5:30 p.m. mountain time, Monday through Friday. Visit us at www.MoneyMetals.com or call 1-800-800-1865.

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