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.
Welcome to this week's market wrap podcast, I'm Mike Gleason.
Coming up, we have an exclusive interview with well-known silver expert David Morgan. He offers his short-term and long-term outlooks for precious metals. You'll want to pay close attention to his insights on the markets – particularly at this critical juncture for gold and silver.
But first, let's recap the action in the metals this week. Things got off to a rocky start on Monday, especially for silver. Prices plunged in overseas trading, taking silver down to close to $20 per ounce. But instead of igniting another wave of intense selling in the U.S., buyers quickly stepped in and drove prices all the way back into positive territory. For the week silver shows a gain of less than 1%. The white metal currently trades at $22.50 per ounce as of this recording on Friday morning.
As for gold, it found support this week at $1,350 per ounce, just slightly above the panic lows seen in April. If the lows hold, a textbook double bottom would be shaping up. This is a bullish chart pattern indicating a firm base from which prices can stage big rallies. This week gold has risen 2%, adding about $28 per ounce and trades at $1,389 as of this moment.
The first major hurdle gold needs to clear in the days ahead in order to put the bulls back in control is $1,475. That's where the initial rally off the April lows stalled. If it can clear $1,475, then we'd look for gold to test the really big line of demarcation at $1,550. That was the major support level that gave way in April and triggered the barrage of selling.
Turning to the Platinum Group Metals... after outperforming gold and silver recently, they lagged this week. But both platinum and palladium entered Friday morning with essentially flat for the week. Platinum, currently holding at $1,464 per ounce, maintains a $75 premium to gold. Palladium meanwhile, now at $735 an ounce, is less than $50 away from $780. Clearing that level would mean new highs for the year and new multi-year highs for this supply-constrained automotive metal.
So is this remarkable strength in palladium going to drag gold and silver prices higher? That's one of the questions I put precious metals guru David Morgan. So without further delay, let's get right to our exclusive interview...
This is Mike Gleason with Money Metals Exchange, and it is my privilege now to be joined by our friend and colleague, David Morgan, editor of the renowned Money, Metals and Mining Newsletter to get his thoughts on what has been a rather tumultuous year so far for precious metals investors. David, welcome back and thanks for joining us.
It's my pleasure Mike.
Well, here we are five months into the year and many gold and silver bulls have been rather frustrated by the market action that we've been seeing so far, not just in 2013, but going back some 24 months now. For the year silver is down close to 25%, gold is off nearly 18%. Meanwhile, unless I'm missing something we haven't really seen any change whatsoever in the fundamental reasons for why someone would want to own precious metals. So how does one make sense of all the negative price action in the metals markets; because, we've seen nothing to indicate a slowing to the currency destructive measures by all the central banks.
Well, I think the answer is how do you reconcile this as investors and the answer is investors. An investor has a long term macro picture and they have power of their conviction. Basically, Jim Puplava of the Financial NewsHour and myself many, many years ago, early 2000's, talked about the perfect investor, we didn't use that exact word, but the idea was if you had bought into Japan from 1980 to 1990 and just bought and held through all the ups and downs, you would have made a massive amount of money.
If you had redeployed into technology in 1990 and 2000 and held that ten years through the ups and downs, you would have made a massive amount of money. We suggested that if you got into the metals in the early 2000's and held all the way up through the ups and downs you would do very, very well. The question comes, is it over? I say absolutely not. The reason I can say that is one it had no signs of a top, other than the chart and even that didn't look like much of a top compared to how the metals actually can perform.
Sentiment is low and there was such little participation. So we are still in an attitude that maybe this is it. It's really not in my view. Basically you want to hold all the way up and not chicken out of the bull market. This is something similar that took place in the last bull market. We had gold from the set price of near $35, all the way up to almost $200, down to $100. It took it almost three years before that recovery from the high of just under $200 to come back up to $200 again, it visited a little bit over $100 and then made its way back. That was a long, long time relative to the amount of the market that had taken place thus far.
Many were convinced that the bull market was over. Once it got back to the high, many were convinced it was a double top, and yet that's not what happened. What happened was the market took off from that roughly $200 figure all the way to $850. It quadrupled from that point. I think we're going to see something similar here. Basically, you've got to have the power to hold and you're not getting new buyers.
Yes, patience is certainly going to be, I think, a good thing for people in the long run here. Don't lose your conviction. Now the last time we had you on the podcast you probably gave one of the best and most honest answers I've heard on the ideas, manipulation of the precious metal's markets and you talked about the Working Group on Financial Markets and their edict to keep things under control, I guess for lack of a better word, but regardless of their efforts, you mentioned that the overall trend can't be manipulated despite what they might achieve in the short run.
Now it seems like they've maybe ratcheted up those measures here recently. Do you think the main purpose is maybe to shake out people to the point that gold and silver are no longer viewed as safe havens, and if that is the case and one of their main goals, do you think it's working? Obviously; because, there's been huge amount of buying in the physical markets to suggest that maybe it isn't shaking the confidence of the key players?
Great question. My opinion is that the Working Group on Financial Markets is used to instill confidence in certain markets, primarily the debt markets, which means the bond market, and secondly the stock market. These are what the establishment is concerned with. They want most investors to be taken by the bond market or the stock market. The Working Group on Financial Markets was formed after the 1987 stock market crash; because, at that time the "circuit breakers" that were in place did not work. We got this huge waterfall decline and a big, big decline.
In fact I was involved at that time, as I've been involved in the markets for a very long time. It was quite scary. The Working Group on Financial Markets was established so that this couldn't happen again. I think what you stated, Mike is part of the idea that if they get the establishment to give market indicators for the stock market and the bond market to look good and a lot of these people that are short termed oriented, that were into metals, let's say not that long ago are easily convinced to go the for the fast buck, which means to dump the gold and silver markets, the ETFs associated with it and move into the stock market. That's what we're seeing right now. If you are not convinced that there's any manipulation of the market to suggest, any one that looks into this go to Google or any search engine and verify what I'm saying, look up the 1987 stock market crash, or better yet look up the Working Group on Financial Markets.
How much longer do you expect it to go on and ultimately what do you think the tipping point will be to bring a shift from where we have say the paper market, sets the price for the physical market and what sort of specific things should investors be looking for as signals of a trend change in that dynamic of the paper market setting the price for the physical?
Let me answer that kind of in reverse. First of all we're seeing several facts around the gold market that the physical markets are breaking down. Germany being primary. It's not being able to receive its gold for seven years. I mean this is ridiculous. That's what the Federal Reserve told them. Then we have this Dutch bank that had physical gold for their clients and they came out recently and said, "No, you have to settle in cash, not physical." Additionally, there's tons of antidotal evidence all over the internet on sites that are frequented by gold and silver people that have different accounts of not being able to get gold basically that they're already bought, paid for, stored, etc.
They're getting non-deliveries and their getting cash settlements. So objectively, if you discount everything I've said, you still have Germany. That is an irrefutable fact. That alone is pretty loud and very clear. There's something going on in the physical gold market. If there weren't any problems in physical delivery, then Germany would obviously be getting its gold here very quickly. I expect the paper markets though to continue through probably the end of 2013 and probably through 2014.
We continue to see big differentials between the retail price and the commercial bar price. As long as the commercial bars can be delivered in a somewhat timely manner, the paper markets will maintain basic credibility. Once that breaks down then we know. That's the point. And in the meantime lots of gold is coming off the COMEX and out of the gold ETFs. I could be wrong on my look of another couple years. Perhaps we're going to see this gold delivery problem sooner than later. That's when we'll know.
It will not be called in default, but it will some lame excuse coming out of the mainstream press. Basically, what it will amount to is another Germany type of situation. It might be a big hedge fund. It might be Paulson buying more gold, one of these huge fund managers, David Einhorn or one of these types Carl Bass, I don't know who it's going to be, no one else does. It could be something like that. It could be Sprott that says here, give me this much gold and taking it off of a major bank, a major bullion bank and a major bullion bank can't access it time, and they have to delay delivery. I think that's going to be the tipping point.
Let me back up again, some of the fundamental drivers for precious metals and why it's likely going to be a good asset moving forward here as we go throughout this decade. Now we've got the Federal Reserve maybe hinting at the end QE, if you believe them or not, I tend to not put any water in what Bernanke says. It looks like the US is currently falling behind here in the race to devalue. What do you expect the Fed to be doing as a reaction to that, and when will they make some sort of a new measure that's going to be very inflationary?
Another great question. Let me just state this is my opinion. I think we're using Japan as a test case. There's already strong indications that the Japanese government bond market is in trouble. You've already seen volatility in interest rates in Japanese government bonds, that are unprecedented. That's when they're just getting started with this 222 policy. This is absolute complete and total 100% insanity. I mean this 222 policy will double the monetary base, that means the cash market. That is the amount of printed money they want to generate 2% inflation. They want to do it within two years.
If that isn't a signal to anybody that's ever studied even slightly what happens to a paper free system, then they don't understand. People that don't have any education on this topic, they're oblivious to it which is probably 98% of the population, but none the less the facts are right in front of us. I think the Fed is looking at it. Now the debt markets that exists basically the US debt market is the biggest, but Japan is not that far behind.
The debt market in Japan is huge. I think that maybe this is again opinion, the Fed is looking to see what's going to happen in the Japanese debt markets and see how the reaction and how the markets taper over what they do as in indicator for how much more they can get away with, but again that's how I see it. Regardless of my opinion the facts remain that the Japanese have taken a step here into absolute financial suicide/insanity.
If you look at the gold in Yen terms, I know it hit an all-time high last month shortly before that big price correction that we saw mid-month, but Japan is an interesting test case and it's the world's third biggest economy. So it definitely matters quite a bit on the global scale. Looking at one of the metals here, I wanted to speak to you about palladium has been holding up quite well in 2013, despite weakness in the other metals, year-to-date it's up about 7% and it's held above $700 quite consistently here. Now obviously the dynamics for any of the platinum group metals are a bit different than for gold or silver and palladium is more of an industrial metal than a monetary metal.
I've heard it said that the PGMs often lead the way for silver. We haven't really seen that despite palladium's surge. Is that theory kind of thrown out the window, or do you think that eventually the strength in palladium will manifest itself in the more well know precious metals, meaning silver and gold.
I was taught, when I started trading futures very seriously, my broker was very good in the metals. And he taught me that whites lead yellows is the way he stated it. I've witnessed that over the years. Obviously, I agree with you Mike that you can't look at platinum/palladium as monetary metals. The market does it in a very, very small. If there's any place you could really manipulate a market from the long side, it was be the platinum group metals. Having said that it has been precursor in the past and I think it still has merit, but as we all know, as I've just said, it really isn't considered much of a monetary role.
If you look back at history again, I love dealing with facts and we see where Ford Motor Company bought a billion dollars' worth of physical palladium for the supply chain for the catalytic convertors, the price went crazy and the futures market ceased to function really. The reason I say it ceased to function is that at the top of the market, first of all as it was going up to over a thousand dollars an ounce and gold was at that time in the hundreds of dollars per ounce. It went well over the gold price at that time.
You had to put up more than the full cash price to stay in the futures market. Well then what's the benefit of the futures market if you have to put up more than the cash price? At the top of the market you had to put up double the cash price to stay in the futures market. That's how absurd it was. The futures market totally broke down. Jim Sinclair has talked about the gold and silver market, particularly the gold market, then when the margin requirements are basically the cash price, then you don't have a futures market. I didn't mention that in your previous question that I want to emphasize that now; because, that's another sure fired indicator that there is no futures market.
They said, "Oh we've got a futures market but palladium and gold are so high, our team put a full cash price." Now you have a cash market, not a futures market. To my thinking it still is a precursor and it is also a precursor to probably what will take place in the silver market, almost certainly it could happen in the gold market as well.
You're current thinking on prices in the medium to longer term, has that changed any with the recent events and the declines that we've seen here recently, is your outlook still bullish?
I've been gold bullish and somewhat bearish. I'm not a perma bull, I am for the long term and I'll call the top when I see it, if I see it and I trust I will get close, but as far as the short term is concerned, I put out a video Monday to our members only for the very short term. Well, let's just say I'm bullish, I'm looking for a rally into June. I'm not going to mention the exact time or the price I'm looking for, but I did do that, and that's what I get paid for part of the service basically with the long term investors, but we do trade part of the portfolio. I do like to put a trade on from time to time and I just updated everybody on that.
Long term, you're still thinking we're going to see things moving a lot higher, I take it?
Mike, I do allow myself the option to adjust my thinking if the market reveals more. I mean no one is perfect in this business. I have said for the last I think several weeks, if not few months, that it takes about two years for the silver market to work off that parabolic high that we saw May 1st, 2011, the end of April 2011. It has obviously been two years and a few days right now. I think we're probably going to see a relief rally here as I just mentioned. It's probably going to come back down in maybe the August timeframe, which is historically true for gold and silver, and then we're going to start up in September.
I think by the end of the year, we'll be past the breakdown area which for gold was roughly $1,550 and for silver $26, it will be above both those levels for both metals. Then I think 2014 is going to be a rebuilding year where interest comes back into the precious metals market. I will see an acceleration in my view, just like we saw in the last market, probably not as dramatic as we saw in the 70's and 1980 market where we saw these huge moves in a very, very short amount of time.
I already gave a lecture up in British Columbia, that I'll be going back to here this weekend. About 90% of the move comes in the last 10% of the time for the silver market. I've been saying that for a while. It's something that Jeff Christian had mentioned early on in this bull market. I never actually did the math. It's quite simple to do and I did look at it recently, you know about a year ago when I made this speech. It turned out that that's almost exactly what it is. It was like 87-1/2% of the move came in the last 7% of the time.
I don't think it's going to be an exact repeat, but I am suggesting strongly that it will accelerate and you'll see these drastic moves up and people will be coming on board late, rather than now when they should be accumulating.
Yes, that's great advice and good insight. Well, David thanks for your time as always and we look forward to speaking with you again down the road perhaps a bit more regularly than we have been. Now before we go, you alluded to it a moment ago an upcoming speaking engagement. This Monday, May 27th at the World Resource Investment Conference in British Columbia at 4:30 I believe is when you're going to be speaking. And for those who are going to check that out, what can they expect to hear from you?
Well Silver: the Move Ahead that's the name of the speech. It is the second day, the 27th at 4:30 in the main auditorium. If you want more information just go to my website www.silver-investor.com. It's right at the top. There's a couple of URLs you can click to register for the event.
Well, excellent. And having seen you speak before, I can say that is sure to be both informative and entertaining as well, so anyone checking it out will not be disappointed.
Well that will do it for this week's market wrap. Thanks again to David Morgan for joining us. Don't forget to tune in next Friday for our next weekly market wrap podcast. Until then, this has been Mike Gleason with Money Metals Exchange. Thanks for listening and have a great Memorial Day Weekend everybody.
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.
About the Author:
Mike Gleason is a Director with Money Metals Exchange, a precious metals dealer recently named "Best in the USA" by an independent global ratings group. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.