Gold Manipulation Allegations Hit Mainstream Media

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, we have a brand new interview with silver investor and listener favorite David Morgan. He weighs in on recent market manipulation controversies and offers his take on where precious metals prices are headed between now and year's end.

You DON'T want to miss this…

As for this week's market action, geopolitical tensions exerted a heavy influence. Investors are bracing for the possibility of the United States placing economic sanctions on Vladimir Putin's Russia. As it happens, Russia is a major producer of several key commodities. It supplies much of Europe with oil and natural gas and is the leading supplier of palladium to the entire world. In fact, Russia and South Africa together control 80% of the palladium market.

It should therefore come as no surprise that palladium prices have been on the move big time in the past few days. On Wednesday, palladium broke out to a fresh 11-month high. Its sister metal platinum is also showing some strength, partly due to concerns that ongoing strikes at South African mines will constrain output.

On the week, palladium spot prices are up 4.2%, with the metal currently trading at $778 per ounce as of this Friday morning. Platinum shows a gain of about 2% for the week, with prices coming in at $1,478 per ounce -- a 6-month high.

Turning to silver, prices have been consolidating over the past two weeks after busting above near-term breakout levels. The metals have experienced a correction so far this morning. As a result silver currently trades at $20.90 an ounce. It was flat for the week heading into the day but is now off about 2% for the week as of this Friday morning recording.

Silver's relative underperformance versus the other white metals may represent an opportunity to accumulate silver on the cue of palladium and platinum. The platinum group metals have accelerated to new highs for the year, which may serve as a leading indicator for silver. In other words, you may have a brief window of opportunity now to accumulate silver before it makes new highs for the year and potentially embarks on a more significant rally toward the $26 overhead resistance level.

Of course, you can also buy the platinum and palladium breakouts themselves. Money Metals Exchange sells both platinum group metals, which we believe are under-owned and under-appreciated by most precious metals investors.

And on that note we are now taking orders for the 2014 one-ounce Platinum American Eagle. The 1-ounce Platinum Eagle hasn't been produced by the U.S. Mint since 2008. But this month marks the coin's return. There's no telling how long the Mint will produce the Platinum Eagles, so these items could become scarce in the years ahead, especially if investor interest in platinum picks up as we expect.

Platinum currently trades at about a 10% premium to gold. That's relatively low, historically speaking. There is room for platinum to gain more versus gold, though there is no guarantee that it will. Platinum is much rarer than gold, but it doesn't attract anywhere near the level of investor interest. Gold bullion products tend to be more widely recognized and more liquid. Gold is traditionally used as money whereas platinum is not, so there is no substitute for gold as a core holding. We suggest platinum and palladium as adjuncts for diversification.

Turning to the yellow metal, gold prices currently come in at $1,334 per ounce, up only a couple of bucks for the week now after this morning's pullback. Gold got a bit of a safe haven boost from the turmoil in Ukraine. Risks of additional, potentially larger geopolitical flare ups in the Middle East or the China region certainly exist. But gold will need to find other catalysts in order to extend its rally, and breakthrough the $1,350 level – which is becoming somewhat of a big overhead resistance level at this point.

If the U.S. Dollar Index continues to weaken, that should help lift precious metals prices and stimulate investment buying. Interestingly, despite a plunging Russian ruble, the dollar couldn't stage a rally this week and appears set to continue trending downward in the intermediate-term.

For more on what's likely to move the metals going forward, let's get right to this week's feature interview.

Mike:

I'm happy to welcome back our friend David Morgan of the Morgan Report and Silver-investor.com. David, thanks for joining us. It's good to talk to you again.

David:

It's good to be with you, Mike.

Mike:

It's been several months since we last spoke, so catch us up on where we're at in the metals. We've seen some solid gains of course over the past month or so. What's your take on the market action this far in 2014 and where you see things going from here?

David:

We've had actually a good year so far, from the beginning of the year. Both gold and silver are up about 10-percent. And even platinum and palladium are showing some good strength in here. In fact, the other white metals, particularly palladium, is actually putting on quite a show, just reaching it's one year level. So it's making a new high, or just about to. Nothing surprising here, but we had a two-and-a-half year downtrend, or consolidation, or sell off, or whatever you want to call it. And you don't come back from those instantaneously. You don't make those back in a matter of two months or so, at least not under normal circumstances. I will consider us to be in quote-unquote normal circumstances as far as the world geopolitical system and the economy is. We're still in that situation where things move and it's going to take time to build back up to the former high prices.

However, there's a lot more interest, and the mining shares, which are really a leading indicator, have done extremely well. In fact, if you look sector by sector, the mining sector is the best performing so far in 2014. So a lot of good things for the precious metals. They've been beaten up so bad they almost had nowhere to go but up. But I'm not getting overzealous here from the standpoint that it's just up, up and never looking back. I think we have some work to do ahead of us, but I do expect higher prices than where we currently are by the end of the year, and going toward the end of the year. In other words, we're going to see some ups and downs, but overall the trend will be up the whole year.

Mike:

I know you've been monitoring some interesting new developments related to the gold manipulation. Some serious accusations have actually hit the mainstream media of late. Of course, some metal bugs have been raising concerns about price suppression in the trading markets for gold and silver for a long time. Tell us more about what's happening on this right now.

David:

It's a long story that could probably take three hours, but I'll be brief. Probably the most well-known web site and community about precious metals prices manipulation has been GATA, the Gold Anti-Trust Action Committee, and that was founded many, many years ago. And I have attended one or two of their symposiums, and I'm often at speaking events where they also attend and speak. I have read not everything on their web site, but in the beginning, very early, very bright people that have done research for them. And one of those people happens to be James Turk. And James just put out something in a very recent interview, and of course I've verified this and read the article, etcetera. But Bloomberg...and Bloomberg is a well-known financial publication, reported that gold price is being manipulated, which followed shortly on the heels of a similar report in London's Financial Times.

Any report like this in the mainstream media is a big deal. And to have it reported twice is indeed an important development. Those are the words of James Turk, and I agree with him. Then he goes on to say, "The fact that this information is now being made public is a historic event in the gold world. News reports like this in the mainstream media describing price fixing and the interventions in the gold market are now being brought to the attention of the mainstream investing world. It was just a matter of time before these interventions finally appeared in the mainstream media. The US regulators won't do anything about it, just like the investigation by the CFTC in the silver price manipulation.” And that's been going on and off for years. The last one took several years, and they basically threw up their hands when they saw there was nothing worth pursuing as far as criminal activity, or something that they could really sink their teeth into. They didn't ever really say there was no manipulation. What they said is they'd looked into it all these years, and they didn't find anything that they could go forward with.

And then James Turk goes on to say, "However, it's different here in Europe. There is a 50-50 chance that regulators will pursue it here in London." And James is in London quite often. That's where he was speaking from when he said this. "But regardless, there is probably a 90-percent chance that German regulators will make waves. So expect more mainstream media reports about the interventions in the gold market, which is extremely important." I couldn't agree more. He (James Turk) is a very solid guy. I've known him for years and years. And that's just one voice of many.

Many people from GATA, many people like myself, many people in the bullion community on all sides have been saying, "Look, look, look." And the regulators seem to look, look, look the other way or ignore it. But here we have people out of London, people out of Germany that are taking an interest in it. And it's going to be very, very interesting to see how it goes forward. Because I think it'll be a little embarrassing if this BaFin, which is kind of the equivalent of the SEC in Germany, comes in and determines that there has been manipulation in the fixing of the price of gold, or in silver, or both, or whatever they determine. I think it'd be rather embarrassing for the US regulators, when you do get in a battle between, "Yes they did" and, "No they didn't." "Yes they did." "No they didn't." I don't know if it would turn into a he/she said type of situation or not. I'm getting off track a little bit, but the fact that a mainstream media - two of them - have come to the fore and reported this, it's not going to go away in my view. I think this is going to be ongoing, and the results are to be determined. But they could be determined in a manner that could be embarrassing to the US regulators.

Mike:

If we didn't have manipulation in the markets right now, where do you think prices would be at the moment? I mean, if all this manipulation got sort of unwound, and we had fair markets, you've got to think the prices for gold and silver would be quite a bit higher than they are now. Especially silver, I would think.

David:

I do. I think higher is not the only thing I could say. It's very much speculation, conjecture, whatever you want to call it - say what would happen. I think of one of the facts about the non-free market, if you will, is that who would participate in these markets if there weren't such scrutiny by authorities? In other words, when Buffett made the purchase of 129.7 million ounces, he did it through an entity. No one knew it was Buffett until there was a lawsuit thrown at him for manipulating the price of silver. And then he came clean and said it was Berkshire Hathaway. And it was less than two-percent of their holdings. He didn't even report it as silver on the financial statement of that year. It was under the miscellaneous column. I know. I researched it. I wrote a paper about it.

But back on point, I think anyone outside of that is very reluctant to get into the silver market in size because there might be consequences that might affect other areas of their business. I mean, if you had some large entity, they probably just wouldn't consider doing it because of the possible repercussions - what happens to the Hunts. And Buffett - nothing happened to him. But the fact is, now there's regulations after the Buffett experience, that you can only purchase off exchange, like 1500 contracts, which is 7.5 million ounces of silver.

So where would the price be? It would be higher. It would depend, especially on the silver side, on who or what bought. And if people or entities that had a lot of money, relatively speaking, to us average investors, to put in the silver market, you could take the price extremely high because it's such a small market. But again, you don't see that happening. And it's one of my beliefs, it's not a fact, it's not a proof, it's a strong opinion, the reason you don't see some of these larger funds perhaps take a really large position in the silver market, is one, the regulations that exist, and two, the fact that they don't want to be brow-beat by the authorities saying, "You can't do that, na na na na" type of thing.

Mike:

Moving on. You alluded to this a little bit earlier, but the other white metals, particularly palladium, is really soaring here as of late. What's driving the big jump is palladium, and what is your outlook for the PGMs going forward?

David:

The reason that palladium is so important is it's basically a complete substitute for platinum that costs roughly twice as much. Palladium is much rarer than platinum, and the two places where you can get it is usually Russia or South Africa for the most part. Since there's problems with Russia right now and South Africa, that puts more upward pressure. And they're never really thought of as money. And I'm not an advocate saying that they are. They share characteristics of money, but they're not thought of as money by hardly anyone. Nonetheless, that doesn't mean they can't move up in price. So the amount that forecast to come out in 2014 is roughly 10 million ounces of palladium, and an additional three million from recycling. But again, as I said, this is tenuous because of the South African situation, which is increasingly getting worse right now, and Russia again who has from time to time held back supply. And with the sanctions that have just been ordered today by President Obama, certainly it could be within the realm of thinking that Putin or Russia might hold back on certain strategic metals as well as way of playing the other side of the coin, so to speak.

Mike:

Meanwhile, with this supply crunch that you just talked about, we do have some more demands coming in all the time, especially from the automotive sector in Asia. They're gobbling up a lot of platinum and palladium.

David:

Absolutely. It's interesting that you say that, I spoke at the platinum panel over in Hong Kong when Standard Chartered Bank invited me to be a keynote speaker. And what I found out was something that I didn't know, because I hadn't studied platinum all that hard, although more than probably a lot of the gold newsletter writers. Regardless, the reason that platinum is such a strong jewelry market in Japan is that during World War II, basically there were sanctions put on that they couldn't use gold jewelry. So they went to something of high value, and that's platinum. So that's why it's actually become rather popular in that country.

Mike:

With all that said, what's your outlook for the balance of 2014 here? Not just for the PGMs but for gold and silver of course.

David:

All precious metals I think. They usually move together. First of all, on the platinum-palladium thing, if these markets break to new highs - which palladium is in the midst of doing, so it's actually the leader of the four - and it maintains that and we get above the one year level, which memory serves, is something like $788. If we get above that level and maintain that...yeah the one year level is about $788 it looks like...so that would be a leader. It would be a very subtle clue that very few people will even be paying attention to, although we've written about in the Morgan Report before. So that'll be a very subtle clue to look for. The other one would be that gold and silver just kind of keep nudging their way up, and not in great ways, but pennies here and dollars there. And all of a sudden, people get the my-mys, I call them. "My, my. I didn't realize that gold was back to $1,500 or $1,600. I thought gold was under $1,300." So these markets have a way of stealthily moving up at times.

I think we may be in that kind of a year, Mike, where we see these markets move up and down, up and down, but overall the trend is up. They're not really those big, sharp moves that you might want, but they gradually just keep creeping upward. The mining shares as well, although there's still a lot of smaller stocks, smaller companies that have very small amounts of capital left, their burn rates are low because they don't have any money. But some of these will probably fall to the mat. And the senior (producers) are having trouble on the gold and silver side, probably more on the gold side, maintaining good positions with the current prices. In other words, it's very near the cost of production. It's hard for them to have the excess cash to go out and look for new projects, increase production, and that type of thing. So gold and silver prices are almost forced to go higher or you'll see a curtailment of production. And probably you're going to see a little bit of both. In other words, you're going to see prices moving higher as I just said, and you may see a little bit less robust production in this year 2014.

Mike:

Well finally David, before we let you go, tell our listeners about what you're working on there with The Morgan Report. Some insights on what's in the March issue and then also how people can find out more about the Morgan Report and your service.

David:

Great. Well the easiest thing is to just go to the web site, themorganreport.com. You can get on our free email list, and you get a sample issue. You also can get on our Twitter feed or our YouTube channel, which is Silverguru. Send an email to our support staff, whatever you want. The paid services are over on the right-hand side. You can click through those. You can read. You can listen to my friendly voice describe each level of service. And as far as the issue we just went through, we basically talk about the metals, obviously, and what's going on of extreme importance. We took at the platinum and particularly palladium markets. There's a lot of company updates, companies that we follow closely, and then we have a new one that we recommended. And this stock is very interesting, because this stock keeps going up about 10-percent every day. Since we recommended it, one of the people that works with me was complaining today. He wanted to get more but he's elected to buy something that's going up every day. But anyway, it's very undervalued. It's held by one of the best known and most respected gold fund managers that I happen to know personally. We were putting the icing on the cake, so the speak, and I gave him a call over the weekend, which I don't normally do. But I had this one little bitty nagging question. And I'm pretty thorough. And I just wanted to get one thing resolved before I actually published it. He cleared up my concern. It was nothing to be concerned about. And we published that.

Upcoming, we're going to be looking at a ring company. One of our guys just got back from a tour. We'll be doing a film of that for people that are on the advanced service. They'll be able to see it as if they're there, because he films the project and interviews some of the people on-site. And beyond that Mike, one more thing, and thanks for giving me some time, is we are going to re-publish "Get the Skinny on Silver Investing." I'm not sure that'll be that title, but I'm going to incorporate some of the help that I now have, that I didn't have a decade ago to help me revamp the book. So basically, I plan to come out with the bible on silver, which was basically my goal when I started. I had the idea to write the first book, and when I teamed up with the publisher, it was, "No, no, no, no. You're not going to do that. You're going to do just kind of a quick read, 100-page kind of a thing. That's our format. Follow our format, and we'll help you sell the book, which is of course what I did on "Get the Skinny on Silver Investing." This time it'll be self-published, and it'll probably be much more meaty, and much more of kind of the silver bible, so to speak.

Mike:

Excellent insights as usual. We always appreciate your time. And we certainly want to strongly encourage our listeners to check out the Morgan Report. Again, it's themorganreport.com. You can sign up on David's email list. He puts out some great content on the metals markets, basically every week. Well thanks David. Hope to catch up with you again real soon.

David:

Thank you Mike.

Mike:

That was silver guru David Morgan of the Morgan Report joining us for the conclusion of this week's program. 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.

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