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Weekly Market Wrap

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Exclusive Interview with Silver Insider David Morgan

Learn What to Do When Inflation Rears Its Ugly Head...

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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:

Welcome to this week's market wrap podcast, I'm Mike Gleason.

Coming up later in the program, we have a revealing interview with silver expert David Morgan. David offers some key insights into recent market action – and this is definitely something that precious metals investors can't afford to miss.

But first, let's review this week's market action. It looks like last Thursday's relief rally following the last-minute budget deal could be the start of something more significant. Despite the doubters, gold and silver prices moved to the upside this week, breaking above near-term resistance levels.

Gold closed at $1,347 per ounce on Thursday, up 2.3% on the week. Silver's gains through the first four days of the week looked even better. The white metal gained 3.6% through Thursday's close. As of this Friday morning recording however, both metals pulled back slightly, with silver trading at $22.40 and gold at $1,343.

Gold and silver posted losses last month but now appear on track to close higher for the month of October. And in these last few days of the month, I'd like to remind all listeners that you still have an opportunity to take advantage of Money Metals Exchange's special low pricing and free shipping offer on one-ounce gold bars. This deal only lasts through the end of October, so please visit our website at IndependentLivingBullion.com for details or to place and order. Or call 1-800-800-1865 for a consultation on gold bullion bars or any other bullion products that may interest you.

Over the last few days, we've only seen moderate buying in the physical market despite the rally. Those that are buying are scooping up some long-term inflation protection ahead of what will certainly be increased spending, borrowing, and currency printing by our nation's politicians and central bankers.

While inflation seems tame now, that's only because the trillions of dollars of liquidity the Fed has pumped into the banking system is piling up on bank balance sheets. Eventually, this cash will start spilling out into the economy – potentially at much higher rates than markets now expect.

Take it from former Federal Reserve chief Alan Greenspan. Even he now says the Fed's policies are likely to unleash an inflation problem. Greenspan's new book, called The Map and the Territory, warns of the potential for double-digit price inflation within the next decade. In one remarkable passage, Greenspan writes that "it is easy to contemplate price acceleration, with today's Federal Reserve balances unchanged, ranging from 3 percent per annum to double digits over the next 5 to 10 years."

Through the mechanism of Quantitative Easing, the Fed has already expanded its balance sheet by $3 trillion above baseline growth. Reducing the rate of debt monetization now seems out of the question completely. At least until the economic data improves and some semblance of fiscal stability returns to Washington.

Maybe March of next year… that's what mainstream Fed watchers are now saying. But don't count on it.

At this point it's not even clear that when the Fed finally does make an adjustment to its QE program, it will be to shrink it. The Fed's next move could be to expand it.

Greenspan is among those who have doubts that the Fed will unwind its stimulus in the face of heavy political resistance to any credit tightening. That's why he sees inflation accelerating big time at some point in the near future.

What would this mean for precious metals? Well, veteran metals analyst David Morgan, editor of The Morgan Report and Silver-Investor.com, certainly has some thoughts on the matter. He's been documenting our faltering political and monetary system for some time, and he expects big moves in gold and silver prices going forward. So without further delay, let's get right to our exclusive interview.

I'm happy to welcome back our friend and colleague David Morgan of silver-investor.com to get his take on what we're seeing in the metals markets right now. David, thanks for joining us again.

David Morgan:

Mike, it's great to be back with you.

Mike Gleason:

I want to start by getting your thoughts on what has transpired over the last few weeks because the market action in the metals has been rather interesting to say the least. The whole government shutdown actually didn't give a boost to metals prices like some might have thought, but instead we are now seeing a little bit of a rally in the days that have immediately followed the debt deal in Congress, so what did you make of that and was that a surprise to you at all?

David Morgan:

Oh, somewhat, but not really. I mean I'm pretty seasoned in these markets and normally markets anticipate the future. They look ahead generally, so the market probably looked ahead and said, "Hmm, nothing's happening we won't do anything," and then once the announcement was made that we all expected to happen, which means further inflation down the road the metals actually reacted to the upside indicating that there's more unpaid bills ahead and they've printed the money or at least in the future will print the money to take care of it, so not a real surprise.

I mean the closer it got and the more antsy people felt obviously some of the metal heads thought, "Geez, this is not right. It should be reacting", but markets do what markets do manipulated or not. Was there some pressure being held on them? I don't know. It didn't look like to me. I mean I'm pretty good at making specifics when we get these huge smack downs or rises. Markets move both directions.

What's interesting to me is that we did have a pretty good move in the metals recently and you don't hear the manipulators saying, "Oh, my God. It was manipulated to the upside." Not that it was. All I'm saying is this market can be manipulated at times. It has been, but overall my views have not changed and that is that the overall trend can't be manipulated. The overall trend is up, although some people question that with the fact that it's taken two years or longer, consolidation for silver. September marked a two year anniversary for gold's high to present time, but it hasn't been near the $1,900 level in two years.

Mike Gleason:

So where do you think we go from here considering none of those problems in Washington or with the dollar and with our debt were solved with the latest deal…do we figure to see an end-of-the-year rally, or do you think this consolidation period will get drawn out further? And do you believe that the bottom has been put in because you mentioned that the last time we spoke and so far you've been right.

David Morgan:

Fundamentally, the metals have got to go higher. I mean there is no question about the fact that this tapering isn't really going to take place and other nation states are printing as well as the United States, so the amount of currency available continues to increase, which forces the price of the metals higher over time. That's a fundamental.

On the other side is the bottom end, and I still believe that it is, however we just did a recent interview just a few days ago with David Bensimon, who does very in depth technical work and he thinks that there will be a further bottom near December of 2013 that will be a lower low than the low I called in silver which is $18 and change and he thinks gold is going to about $1,050, $1,090 in that range by the middle to end of December. What I think is different, I think that the bottoms are in for both the metals, but I do think that we are going to taper down into a low maybe even test the low I just talked about by the end of December.

What we've seen in the last couple of years is not normal for seasonality. The seasonality for the metals is normally you get a run from August all the way up into March or April. Of course it moves back and forth, but the general trend is up and the fourth quarter usually starts the rally and again it extends up into the first quarter of the new year. That has not taken place in the last two. We've seen a huge sell off, I wouldn't say huge, but a notable price sell off, volume has been rather light in the last couple of years in both of the metals and the reason for that, my belief is, that the markets have very few participants, so any new buying or selling will move the market up or down and it's been down, so the sellers are there and they don't need to sell a whole bunch to drive the price lower, so I actually think that this year will be similar. We'll probably see some selling at the end of the year.

Again, I don't think we are going to hit the lows that David Bensimon thinks and he himself says that he doesn't know for certain, but that's what his work shows and of course that's a possibility, I don't rule it out for that to take place and if you are worried about that and you have a good position then what you can do is look at my work and draw a line there and if it breaks below that level or reaches that level you could protect yourself by buying a short term put option or something along those lines.

I don't want to give investment advice. I can't, but I'm just giving an education if you wanted to educate yourself on how to protect yourself. I again don't rule it out. Is it possible? Certainly, I don't think it will happen, but again it's your call if you think that it's a problem or something that you didn't want to take any further downside you could do something about it.

On the other hand if you are just a dollar cost averager, you are a silver stacker or you are just someone that buys physical then it's an opportunity and it's probably going to only be available for a few more months and as far as David is concerned, and this David is concerned, we are either at the bottom as I've said or very close to it according to the other David, so again long-term perspective fundamentally has never been better.

Mike Gleason:

You've been great about reminding investors about what happened during the last major bull market for metals back in the 1970s and I think this is so important in today's environment to keep in mind because we know that there are many people out there who are frustrated, like you mentioned by what they've seen over the past couple of years and are now worn out by the ongoing consolidation period where we just can't seem to get a breakout to the upside. What do you have to say to those folks who might either be on the verge of throwing in the towel and getting out of the metals altogether or are thinking they might not want to continue accumulating based on what they've seen? What will you say to those folks? What kind of advice would you have?

David Morgan:

Well that's a good one. In fact, I just asked my members what they wanted me to talk about at the Silver Summit coming up in the next couple of days and that was one of the questions and they suggested patience and faith. I mean the patience that if you waited this far why not have a little bit more patience and again check your premises. What was the reason that you bought in the first place and if that fundamental reason hasn't changed. In my view, it hasn't then why would you sell? Would you sell to take a loss and there could be individual reasons.

I mean there could be a reason perhaps on a stock for example to sell it for a tax loss and then buy it back 31 days later or whatever. I mean certainly I'm not trying to again tell people exactly what they should do, but on the metals side only, most of the time there wouldn't be a reason to sell, could be and you just have to find out why you bought it and if the fundamental facts remain then I would suggest you hold on to it, so that's the patience part.

On the faith part, the faith is about the system. The whole system is based on faith and the reason you bought metals at one point or another may be not the point you wished you could have, based on the last couple of years is what is the overall faith in something that has intrinsic lasting value such as the precious metals versus a faith-based currency system that's always failed. I mean every currency system in the history of recorded history has always failed and this one is doomed for that. In fact, I would argue it is failing. It hasn't failed.

A lot of people have the idea that failing means it goes to zero or absolute zero and that's not necessarily the case. It could be a situation where what we are really witnessing and that is where less and less dollars are used to settle a transaction and more and more it's other currencies and then a new currency comes in and replaces the dollar. It doesn't mean the dollar goes away, but the US dollar vis a vis a new currency or a new basket of currencies or a new type of monetary standard starts to really accelerate to the downside. Does it mean it's worth absolute zero? No, not necessarily. So these are things to look at.

So the faith that you have is the faith that you bought the metal because it has intrinsic value and holds it value over time certainly maybe it's less valuable today than it was when you bought it and that's really the price. The value is a different term, but regardless and so keep those two in mind and of course to follow on what usually happens is people buy too much at one time. They come in, they get excited. The prices go from $35 to $40 in the case of silver and from $1,750 to $1,900 in gold and they buy in that last month or two where it's really moving up. In fact they might buy it and see it move up and move in their favor for awhile and then of course it starts coming down and they hold and then it goes below where they bought it and then it consolidates and it keeps going lower and they get discouraged.

So this is because people decide to buy all at once rather than take an approach that I think is the best approach for most people, not everyone, but most people, just to dollar cost average. If you wanted to put $5,000 in metals or $10,000, or $1,000 it doesn't matter. The principles are the same and that is okay, I want that. I don't know the timing of the market. I think long term I'm going to do well doing this or at least protect what I have, so therefore I'm going to buy it over the next year or so and even if you do that and bought it for a year, if you bought it the year of 2012 your average cost will be higher than it is in 2013, I don't deny that.

But what I'm suggesting is that a dollar cost average basis on a pretty good income, you just basically keep, it's really a savings account in my view, so you just keep saving on a monthly basis or a quarterly basis or whatever, even semi-annually and over time if you're in a bull market, and we are, you will do quite well by using that method and it takes a lot of stress off you. It doesn't take any timing to do that it just takes a disciplined plan to implement.

Mike Gleason:

Yeah, that's great advice and obviously the fundamentals are still intact and long-term investing is really where people ought to be looking here especially when it comes to the metals, which in a way is a little bit of insurance against all of your paper denominated investments just as we've always been telling people, so I couldn't agree more with all that.

You're well known for The 10 Rules of Silver Investing and in that you're very clear about the importance of getting physical bullion first. So what percentage of one's net worth, you kind of just talked about maybe a strategy of dollar cost averaging and so forth, but what percentage of somebody's net worth would you recommend that they have in physical bullion given today's environment and everything that you know about the world we are living in today?

David Morgan:

Well as you know Mike Rule 10 of the 10 Rules is 10% and I've changed that to 20% for metal heads, people that are in the belief system that we are going to have an economic conundrum here that can't be solved, but if you're just the average person and no one knows really. I mean no one knows if there is absolutely going to be a collapse, I'm going to make a strong argument that we are collapsing, but regardless I say too much of a good thing is too much, so you have got to balance this out with your take. What is your world view? What is your belief system on government, on politicians, on monetary systems, on your business for example or your investment portfolio be it with real estate or stocks or both or whatever, so it's an individual choice?

There is no one exact price or answer that you can give but I'd say 10% is probably great for most people, which leaves 90% for other investments, or other capital allocations you can make. I mean for example educating your kids or whatever, so I really have never suggested that someone go all in. Now, that is not to say that some of our members aren't all in. I know an 80-year-old gentleman I think he's like 100% or close to it. That's an individual choice and I don't say that they're wrong. All I'm suggesting is you asked me what I think and what I think is one you check your own self and decide what works best for you and generally speaking 10% is good.

Mike Gleason:

Okay so somebody has decide to take 10% or maybe even 20% if that is their circumstance, put it into physical metal and they've got say $5,000, $20,000, or $100,000 to invest into the metals markets as a first time buyer. What would you recommend in each of those scenarios in terms of how much silver, how much gold, the types of products and so forth? What advice would you have for people facing that type of decision?

David Morgan:

Well again generally speaking at those levels I think it's best to have small units. If you buy just big bars, then you've got to make an investment decision on when to sell and time it exactly or time it very closely. Whereas if you have smaller units you can sell a few here, there, or everywhere so I'd say basically I favor coins over bars generally. The second thing is what's the mix. Well the mix depends on what your personality is. The younger you are and the more aggressive you are and the more you can handle the volatility, the more you would favor silver.

On the other side of the coin for those that who are older and more stable and don't like the swings that silver produces, you would favor gold. So my general rule is the older you are the more you should probably balance to the gold side and the younger and the more aggressive you are the more you should balance to the silver side.

So for a quick example, let's say you are 30, you might do 70% silver, 30% gold. On the other hand let's say you are 70, you might do 70% gold, 30% silver. That's just a general outline again but that's it and of course check with yourself. Again, my 80-year-old friend he is much more silver than gold, but he can handle it. This is a guy that can do it and also to be fair to the audience I mean he got in with me very early he was like one of my first 100 subscribers, and of course he was able to buy physical around the $5-6 level and he hasn't really added to his position so even though it's $22 today he's still, in real terms, significantly higher so I'm not trying to misconstrue this exact individual. Nonetheless, it takes a lot to go in, all in, at any age, in any investment but that might be the case.

Mike Gleason:

Yeah, silver can certainly be the more volatile metal both to the downside and the upside so yeah, definitely good advice there. We agree on that. In closing here, you mentioned the Silver Summit earlier. For those that are not going to be able to attend that this week, what are you going to be talking about during your keynote this year?

David Morgan:

Well this year is going to be a little bit different because the last several years we have had some really great silver lectures, which was usually what I did in the first 5, 6, 7 years in the Silver Summit, but Jeff Christian does a good outline, Eric Sprott and many other speakers, so the last couple of years I have kind of changed my speech from being about silver to something about the markets in general or it always touches on silver, but it is not directed to silver. In other words, I don't want to repeat someone else's information or them repeat mine.

This year however I decided just go to my members and just ask them what do you want me to talk about and of course I was flooded with questions, so I basically found the ones that were asked the most often, tried to put it in some chronological order and I'm going to be answering their questions from stage. It's a lot of stuff that we do in these types of interviews Mike.

Mike Gleason:

Well excellent insights as usual and we always appreciate your time. Lastly, David please let people know how they can find out more about those 10 Rules of Silver Investing which we alluded to earlier, and of course The Morgan Report.

David Morgan:

It's quite easy. All you have to do is go to silver-investor.com and you can get on our free email list and on that list you will get The 10 Rules of Silver Investing. They give you a rule, I think, every three or four days. It's on an auto responder like most websites are and it will tell you, in fact I expanded them. What's interesting is you can see the 10 rules, Mike, on your site, for example, but you just get the 10 rules. On my site, you get the 10 rules, but I took more time later on and sort of expanded them. In other words, I went on and explained why I said what I said or what the logic behind it is.

Mike Gleason:

Well very good. Thanks David and enjoy the Summit and have a great weekend. We'll talk to you again.

David Morgan:

Good. Thank you.

Mike Gleason:

That will wrap it up for this week. 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 weekend everybody.

Announcer:

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