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Weekly Market Wrap

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Disturbing Market Manipulations, Global Money Flows, and Supply Destruction in Gold/Silver

A Must-Hear Interview with Silver Market Insider David Morgan – Exclusive to MMX!

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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.

Mike Gleason:

This is Mike Gleason with Money Metals Exchange, and it is my privilege to welcome back silver market guru David Morgan to get his thoughts on what the second half of the year might bring for metals investors. David, happy Fourth, and thanks for joining us again.

David Morgan:

My pleasure. Thank you, Mike.

Mike Gleason:

Well, I guess to start out here, I'll ask the obvious question on everybody's minds right now: silver is at roughly $20 an ounce, and gold is under $1300, so we're looking at 2010 price levels. What the heck is going on in precious metals right now?

David Morgan:

It's been a long and tough grind since we peaked in silver at the end of April 2011. It's been a little more than two years. At the time, I was warning people, if it's above $35, if you have to buy, buy some, but don't buy it all. This is coming down. I thought the correction would probably take a couple of years. I wasn't real swift on that. I didn't see that immediately. I said it within probably June, July of 2011, August, somewhere in that timeframe. When you get that big a lift, when we went up from the QE2 announcement, from $19, to $48. I checked the chart. It went up very rapidly. Those kind of moves, I don't care if it's wheat, soybeans, manipulated or not, those kinds of moves take time to digest.

Unfortunately, I really thought that by the time we came back down to the $26 level in silver and the $1550 level in gold – that was probably it. That support level held for quite some time. Just before it broke, I put out a video for our members only, saying, "It's not going to hold. This is coming down. I'm sure of it. We'll probably see $20 silver." Obviously, we have even been below that.

Where are we right now? We had a key reversal last Friday. You can look that up on Google, what a key reversal means. I just did a video on that for our membership. That could be it. I would just wait. There's not enough data on the Fourth of July here to know for certain.

We are very close. You don't have to buy everything, but you can go to Money Metals Exchange, and start buying here, or accumulate more. Really, if you have a good plan, when you get below a certain level – anything under $30 is a good buy in the physical market. Obviously $20 is under $30. $20 is a far distance from $30. Really, if you have the wherewithal to either dollar cost average in, and put in your $100 a month, $200 a month, $50 a month... whatever it is for you. They get to these levels. This is when you might want to say, "I'm having a garage sale and buying a lot more under $20." I don't think we're going to stay at these levels for very long. That means probably, maybe in a few more months, we might see July, August, September. I think that's going to be about it, Mike.

Mike Gleason:

Good point. I have heard you say before that markets can stay irrational for a lot longer than anyone would expect. Hang in there. Those that are still looking to accumulate, it is a good opportunity to add more at lower prices for sure.

With liberty and patriotism on our minds this week, I wanted to take a step back here and talk about the macro picture, and ask you about the long-term ramifications of what appears to be a global shift in metals ownership. Over the last few months in particular, we are seeing gold sold in the West and bought in the East. During these takedowns, China, for instance, is absolutely loading up and buying lots of physical metal. At some point, is this dynamic going to be an issue for our sovereignty and for the dollar, and possibly even our national security, or is that overstating it?

David Morgan:

No one knows. I will give you my opinion. You can take it with a grain of salt, or take it to heart. Yes. All of the above. First of all, everything in life revolves around integrity. The reason that the West did so well was one, we had a lot of freedom. We didn't have much interference. Those are protected at law. The government was in place to protect the individual, to protect your rights, your inalienable rights to pursue life, liberty, and happiness. Of course, those have eroded greatly.

Also, you have the integrity of gold. You had an agent, an element that everyone agreed at Bretton Woods, was the supreme monetary base. There's a reason it's called a gold standard. There's a reason it's called as good as gold. No one questions the integrity of it. As that eroded, so now if you go and see what's happening as you described. I will just reiterate it.

China is basically taking that role, Russia somewhat, and India somewhat. It's shifting to the East. If they go on a gold-backed currency and at the same time are able to institute the rule of law – and that's the key... I'm not saying that they will or they can – then they will become easily the reserve currency. It does matter. It is a matter of national security. It's really a matter of who is telling the truth the most. I'm not stating that very well or eloquently, but you really need integrity from the bottom up and the top down in the citizenry of whatever it is. It could be global. I'm not a globalist by a long shot, but the point being is that things have eroded to the point, so it could get to the point where I think it is going, so I'll continue, where whoever owns the most gold makes the rules.

The rules may not be what they were under the Constitutional Convention. It may be, we have the gold, we dictate this, and America becomes not a Third World nation necessarily, but certainly the standard of living goes further down than what it already has. There isn't really any rights of the individual left. It's like you pledge allegiance to this blankety-blank empire. It upsets me a great deal, Mike. We have the experiment. We, in the United States of America, had this gift for the first time that we know in recorded history where the citizens, the individual had rights and were protected. Basically, in my view, we have lost that.

Mike Gleason:

Couldn't agree more. It's definitely a shame. Switching gears a little bit, with price in the dumps, I'm curious to hear your take on the impact to the mining companies. You're definitely an insider in the mining sector. What effect will these prices have on that industry, and more importantly, the supply going forward?

David Morgan:

It's already having an effect. There's been a couple on our list. We do much more than the juniors, and we spend more time there than I really would like to. They are harder to analyze. We have top-tier, mid-tier, and some junior specs. Mostly, they are not exploration companies. They are usually near producers or producers. Two of them have come off the list in the last two or three months. It's rather upsetting. I can't control the market. One, they had just reached full production about a month ago. We had talked to them maybe two weeks before I published. I published early, because I'm going on vacation. The day I published, they made an announcement publicly that they went on care and maintenance, and shut down production. It's a small amount, but obviously that supply isn't going to be coming to the market.

To further your question, the bigger mines will keep intact for a while. It's actually cheaper for them to operate at a loss, believe it or not, and I don't have time to go into that, and keep going for a while than it is to shut down. It's not like a rental house, where you can just turn it off and walk away for several months, and then come back in and get the cleaning crew in there, re-rent the house. It's not that situation. A mine is more like an automobile, where you have to keep it running. If you turn it off for very long, and don't care to it, it starts to deteriorate pretty quickly. Because of that fact, a lot of these mines will stay operating even if they are at a loss, because it has been a long run. In other words, over a timeframe of say, the fiscal year for the given corp, they will be better off taking a loss for, say, eight months than they would to shut down and eight months later try to come back up, because it would cost more money. I hope I'm being clear on that.

The longer it goes, and this is my fear, then obviously you have to make a decision at some point. No business is in business to operate at a loss continuously. There would be some point in management, that varies mine to mine to mine.

It will curtail the production somewhat, obviously it will be less. Also, you have to look at the base metal mines, when it comes to silver, of course, because 70% roughly comes from copper, lead, zinc and gold-mining. Gold mines are in the same situation. Silver mines are operating right at the margin. A lot of them are above the cost of production now, in other words, it costs more for the gold to come out of the ground than what they are receiving in the market for it. It will curtail production. Not as rapidly maybe as some people think, excuse me, and again, the base metal mines are important too, for the silver industry, because if copper is under the cost of production, lead, zinc, then we're going to see those mines start to curtail their production as well.

Mike Gleason:

I want to ask you about the likelihood of tapering by the Fed. A day after the Fed minutes were released a week ago, where the tapering talk was thrown out there, markets corrected sharply, then we quickly saw some backpedaling type of statements to calm the markets. Does this give us clues about whether or not the Fed will really pull back the reins on stimulus? What do you expect they will do over the medium to long-term, because, unfortunately, their policies have a heck of a lot to do with where all markets are headed.

David Morgan:

Right. I don't think that they will. I think it was more or less a trial balloon. I think Bernanke did it deliberately to see how the markets would react, that is my take. No one can prove that. Obviously, it tanked all the markets. I don't think Bernanke expected that. This is just totally my opinion. I don't have a hotline to Bernanke, nor do I want one. I think he expected it to quell the gold market. Not that the gold market was hot, it was very cool. The stock market took a big hit as well. The bond market's starting to react now, not only in Japan, where they have gone on this insane idea to depreciate their currency by 50% in two years. This is absolute insanity. I think you can look to that as what's really going on.

Yeah, there is a lot of rhetoric about, we might taper, we might have to slow it down, turn it down, they haven't really said stop it. I think it's just hot air. I think it's just talk. They have the ability to do it. If they did do it, they would be shooting themselves in the foot. There is no way. They have to keep this thing going.

Unfortunately, we are near the end game of these fiat systems, and again, at the expense of sounding like a broken record, this has never happened on a global basis before. Everybody is tied to the dollar, reserve currency in all these international banks is the dollar. Look at China, and how many trillions they have in U.S. Debt. No one's buying the debt, except the Federal Reserve. The Fed is responsible for buying the debt, about 80 percent. Only about 20 percent is being pawned off onto these other countries. They know what is going on. They see it. Everyone is looking for a lifeboat out. Yet, it is not really taking place. It's a really tough, tough situation. In my view, it is going to continue.

Mike Gleason:

You tweeted a link to an interesting blog post earlier this week that discussed how the manipulation we have seen is going to cause an acceleration in the bull market. I wanted to get your thoughts on that. First off, do you believe that the recent correction has been a product of manipulation, at least in some part? If you do, will this manipulation and its depression of prices work against the manipulators in the future?

David Morgan:

Yes. This analogy has been given before, but I will use it. I think it's a very accurate analogy. It's like pushing a beach ball under the water in a swimming pool. It is at a level, once you reach equilibrium where the free market price, and that would be the beach ball rested on top of the water but you've pushed it under the water, and you've got it 2 feet down. Then, you come along and you manipulate it. To manipulate it down, you have to take a lot more force to push it down further. You push it down another 2 feet. How do you do that? You use a lot more force. To get force in the markets, it's volume. There is a huge amount of volume, unprecedented volume on the downside selling of fictional metal. In other words, paper product metal that doesn't really exist, at a huge rate. You force the market down. Well, think about it. If you force that beach ball down an extra 2 feet when it should be resting on the surface, and now it's down 4 feet instead of two, what have you done? You have a lot more pressure on that ball, that it wants to push it back up. That, I think, is the best way I can describe what happened and why.

The overall market cannot be manipulated. At this point, there's powerful people that dislike me for saying that. I truly believe that. If it were true, you could set a price and keep it there forever. You cannot do that. In order to manipulate the market as it is, at times, and it certainly has been recently, you have to come in with a lot of selling to move it down, or a lot of buying, conversely, to move it up. It obviously has been a lot of selling to move it down, and away we go.

People say, "Well, for every buy there is a sell, and for every sell there is a buy." Well, that's true, but you don't understand how markets work. There is more pressure selling, the market will move down. Some of it has bots, over, say, $26, the market goes down substantially. The day it broke, that trend line, that support level, that guy or gal or entity that owned it there gets a margin call. They can't make the margin call. It's more selling, saying, "Oh, I can't make that margin call. I don't have the extra X amount of money to send in." That long position now becomes another sale. That begets more sales. We get this huge downtrend. It's true of all the markets, but not to the level that it is in the silver market. The silver market has more fictional sales against it than any other market on the board.

Mike Gleason:

Yeah, it definitely can snowball. That's, I think, why we generally see these corrections just end up in really oversold situations. Perhaps we will see a bounce back here. You brought this up the last time that you were on, about the price action during the 1970s bull market, and how many bailed out before the explosive face took place, because they thought the bull market was over. Please recap that, because that was such an important point, especially in the wake of this massive correction we just experienced.

David Morgan:

Sure. There were a few of us, I wasn't one of them, but I will go to the gold community at large. A few of us knew how to buy gold before it was freely available under the law change, and we could do it by buying foreign coins. You could buy the Mexican $50 peso, which was a gold coin, at a coin dealer. There were so few gold bugs back in the early 70's, but once gold was set free for American citizens to own, you could buy it at the set price, around a $35 level. There was a fair amount of buying. It took the price all the way up to around the $200 level, or just under. It was pretty much a steady rise. All the gold bugs and those following gold were like, "Look at that. $35 to almost $200, you've got about a sixfold increase. Gold is a great thing." Of course, people were buying near the top, which happens in all of these markets.

Then it had this massive correction. It went from roughly the $200 level down to around the $100 level. It was about that, but not much. It was a 50% correction or so. This was just devastating. At the bottom, we were hearing things almost identical to what we're hearing now. "It's a bear market. It's not a bull market. It's over. I wish I had never bought gold. I don't like listening to the gold commentators." In those days, there wasn't the Internet. It was mailed newsletter types. You'd hear commentary very, very rarely. That was the situation. I see it as a repeat.

Of course, when the last sale was made at the bottom, whenever that occurred, and the last person was out of the market that believed, then we saw about an eight-fold increase. It went from roughly the $100 level up to $850 in gold. It had to work through that overhead resistance of the $100 to $200 mark. When it got back to $200 along the way up, there were people that said, "Double top, I'm out. I bought at the top. It's years later, years later, and I'm out. I'm so glad I'm out. Now my wife isn't going to harp on me because I didn't lose any money. I bought at $200, I am out at $200." Think of what she said to him after it went from $200 to $800 – it was a 300% increase.

This is the way markets move. Again, manipulated or not, that is how markets move. I believe, in fact, I just did a consultation yesterday with a gentleman from Germany, very bright, he was working on his PhD. We were talking about this very topic. He suggested that if this happened again, that would suggest $1000 gold, and then we got an eight-fold increase, that suggests $8000 gold. I didn't disagree with him. I said, "Look. I do not like going on the Internet and forecasting these numbers, because before you get to $2000, $3000 gold or $5000 gold, pick your favorite number, it doesn't really matter, it's the idea to me that's more important. You've got to get back to the $1900 level. You've got to get back to the high that we have already seen. Then we have to move up from there."

I don't like, really, forecasting a given paper price, although I have done it. I said silver would make it to $100, and obviously, we would have to go about fivefold from where we are right now to get to that level. I still believe strongly that we will. I guess that's about the best I can say to you, Mike. It is very important, especially if you are in now, if you are either getting in now or if you have held all the way to this point, there is no reason. The only reason to sell, in my view, is when you had to for some unknown circumstance that hits your personal life. Obviously, that is an individual decision.

But if your conviction is waning, you're getting upset, you're thinking, "Maybe it is a bear market," or these other thoughts are coming to you, just stop, take a deep breath, and re-evaluate. Ask yourself one simple question: Have the fundamentals changed? Is the world getting truly economically better? Are the problems going away? Are our politicians serving us, or doing something different? Those questions are ones you have to ask. If you come up with the answers that I have come up with or something close, you're going to say, "No, no. Metals fundamentally are as strong a buy as they have ever been."

Mike Gleason:

That's a great perspective, for sure. In closing here, I wanted to get your outlook for the metals as we move into the second half of the year. Obviously, it has been a rough second quarter. A lot of damage was done from a technical perspective. Where do you think we go from here during the short to medium term?

David Morgan:

For my work, I've been wrong before, and I will admit it if I am, but I think we've probably got about two or three more months at the worst. I think we're going to be at the bottom. We may have already seen it. Friday, the 28th of June, in silver, did do that key reversal. Maybe that's it. I don't know. What I expect is probably one more low between this timeframe, July and probably the end of August, September, somewhere in the next three months. From that point, I think we will start to work our way back.

Then, probably by the end of the year, I think we will still be above the $26 level in silver, which is a pretty good move from where we are now, and probably the $1500, $1550 level in gold. The main thing is to see the bottom. Whether it makes it to those levels by the end of the year or not is to be determined. It is also to be determined whether or not we bottom or not. The important thing is to see...

There are others out there, like Martin Armstrong, I'll name him, and Martin thinks that we have got many, many months left on this downside. No one knows. As good as Martin's model may be, I would contend that it isn't 100% accurate. Time will tell. He could argue that. Regardless, I think we are probably within about three months of the bottom. It doesn't mean that it's up, up, and away, but the bottom is a bottom, which would be nice.

Once it starts up, whenever that happens, the problem for a lot of people that aren't in the market is that they will expect the recent trend to continue. In other words, since it has been in a down to sideways trend for so long, once it starts out, people say, "Well, it's coming back. I will wait for the pullback, and then I will get in." All of a sudden... silver is above $20 and not back coming under $20. All of a sudden, it is at $22, and it won't get below $22. Then, it is at $25, and then once you get above $26, it is going to have some issues there, let me just say that before we close out. Support becomes resistance on the way back through. The $26 level will support itself for a really long time, $1550 for gold. Once they do work their way back to those levels, you will see selling pressure at those levels for a while.

Usually, it takes three knocks on the door, I call it, to get through those levels. You may see silver trade at $26, then it bounces down, then it comes up to $26, and it bounces down, then it goes to $26, then it bounces down. Then the fourth way through, it hits $26, it goes through it, and that's it. It will never see $26 again. I have followed these markets probably too closely for probably too many years. That's the general idea.

Mike Gleason:

Well, no matter what happens, it certainly figures to be very interesting. It has been an interesting year so far. Thanks a lot, David. I hope you have an enjoyable Fourth of July weekend. We look forward to doing this again real soon.

David Morgan:

Very good. Well, freedom to everybody. Keep it.

Mike Gleason:

As I mentioned before, for those who are on Twitter, I strongly recommend following David. His handle is @silverguru22. I will give him a plug there before we get off. It's a great way to stay up with what's going on in the metals markets, and get David's insights on a regular basis.

That will do it for this week's Market Wrap podcast. Thanks for listening. Don't forget to tune in next Friday. Until then, this has been Mike Gleason with Money Metals Exchange. Thanks for listening, and have a great holiday 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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