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Expert David Morgan Reveals Extraordinary Drivers in Silver

Hard truths about mining stocks every investor should heed...

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Welcome to this week's Market Wrap Podcast, I'm Mike Gleason.

Coming up, we have a feature interview with silver guru David Morgan. David sees a lot of value right now in the metals and has some interesting things to say about a source of demand that could be a real game changer for silver. Don't miss my interview with David Morgan.

But first, this week's market action. Precious metals markets are trading mixed this week, with gold advancing but silver lagging. Gold bounced back above $1,300 on Wednesday and currently trades at $1,312 an ounce, up about 1.3% for the week. Silver prices have advanced from their mid-week lows, but not enough for the white metal to enter positive territory for the week. Silver is off 1.6% since last Friday's close to trade at $20.02 per ounce.

The platinum group metals are also sending mixed signals. Through Thursday's close, palladium showed a loss of 1% for the week, while platinum gained 1%.

A rising U.S. Dollar Index represents a headwind for the metals. The dollar is up for the fourth straight week against foreign currencies, albeit modestly so.

Yet the gold and silver mining stock indexes are showing resilience, refusing to sell off in the face of recent weakness in metals prices. Many of the big gold and silver miners are up on the week. This positive divergence often serves as a precursor to rallies in the metals themselves, more on that come in my interview with David Morgan later in today's podcast.

That said, the more conservative investor would be well advised to avoid the mining sector. While the rallies can be spectacular when they come, the declines can be devastating. These inherently speculative investments quite simply aren't suitable for buy-and-hold investors. Over a period of decades, the mining stocks as a group have actually lost ground versus bullion. In fact, over the past 20 years, the index that is tracked by the largest gold mining stock exchange traded fund has produced a net gain of only 27%. Over that same period, gold spot prices are up better than 243%!

Of course, both the bullion and the equities now trade well off their 2011 highs. But long-time holders of bullion are still sitting on decent gains. Holders of mining shares, not so much.

You've probably heard the saying that a gold mine is a hole in the ground with a liar on top. There's some truth to it. The mining industry has attracted more than its fair share of crooks and incompetents who make promises to financiers and shareholders that don't pan out. So if you choose to invest in the mining sector, you need to be prepared to do your homework and would benefit greatly from expert analysis like that provided in The Morgan Report.

With physical precious metals, you don't have to worry about management or capital market conditions or other issues pertaining to business operations. You just have to make sure you buy the real thing and avoid overpaying for it. All of the coins, bars, and rounds sold by our company come from reputable mints that guarantee weight and purity. And unlike other dealers, we will never try to pressure customers into buying expensive specialty products such as proofs and numismatic coins graded and slabbed in plastic cases. We call those products “Ripoff Gold” and “Ripoff Silver,” and we've seen hundreds of our customers get taken by the shysters who sell them.

It's all about melt value. Look at how much gold or silver is contained in any item, and don't pay much more than the spot price of the metal. For example,Money Metalsis currently unloading a batch of pre-1933 $10 and $20 Liberty gold coins for barely 8% over the gold spot price.

Now, for more on the state of the markets and what could drive prices higher, let's get right to our feature interview…

Mike Gleason: I'm happy to welcome back our friend David Morgan, of the Morgan Report and silver-investor.com. How are you, David?

David Morgan: Doing well, thank you, Michael.

Mike Gleason: Well this consolidation period keeps grinding along here in the precious metals markets. Now we have seen silver hold the $19 support level multiple times, which is certainly a good sign. But we've also seen gold and the platinum group metals perform a little better. Is that concerning to you at all? Basically what do you make of silver's under-performance here of late?

David Morgan: Not much, really. I was early on in the other white metals, the platinum and palladium story and we were very bullish on the palladium and we pretty much called that move up, that's been taking place, it's moving off now. But it isn't a new high territory, and it's the leader. Very few people are paying attention to it.

They take leadership roles at different times. I mean gold leads for a while. The platinum group could lead for a while, then silver can lead for a while.

Silver seems to be as volatile as any of the metals. Probably more than any of them. To be a lackluster situation, relative to the other metals, it's not really concerning to me. I can say that with some authority, from the aspect that I've been in this market for over four decades.

To see it underperform or not do what people want it to do, or expect it to do, doesn't make me really that concerned. I think the more important point is what you stated. It has maintained its ability to hold its support for a very long time. I do think that the bottom is in, but could be proven wrong.

Regardless, if I do know it's going to happen, meaning a new low in this immediate time frame. And low was the 28th of June, 2013, over a year ago, at $18.17 intraday, I think that's it. But if it were to go lower, it's more of a buying opportunity now. Most people that deal with your company know that they should be buying over time, and not to try to pick the exact day.

In fact it's interesting. Let's say, for a thought experiment, you pick the exact date, or the exact time. Let's say you even known ahead of time. You're unable to really execute that point in time and space. For the most part, unless you are on the inside track and you have a preset order for the right amount. Because you might be in between two contracts at that $18.17 price, but the next bid is higher.

So the idea is an amateur's idea, that you can pick an exact bottom. What actually gets billed, in other words, make the total transaction, especially in the first go round, you know that. Because the spreads widen and narrow, depending on how much ebb and flow there is in the business.

I know that your straight-up coin dealer and can explain that to people. But a lot of people just are ... Let's just call them amateurs, or unexperienced or under-educated, or whatever you want to say. Nothing wrong with them, just that they really don't understand how markets work.

Mike Gleason: Yeah, there is certainly a lot of value to be had here. We both agree on that, for sure. We have had this three-year slump in metals now. What type of catalysts are you looking for in order to get a true and sustainable rally going in the metals? And one that doesn't fizzle out, like the rallies we've seen over this consolidation period?

What is it going to take, and what do you see as some of the events and drivers that will cause it to finally shoot up?

David Morgan: Not to sound cute, but really I'm almost at a loss to say what the drivers are. I mean I know what will do it, and that's higher prices. Higher prices are going to drive it, but how do you get there?

With all the geo-political tensions that are going on now in the Ukraine, with Putin and Russia. What's going on with Israel, and Hamas, and everything that's going on. I mean those are catalysts that should be taking gold, specifically gold, silver along with it, higher, and it's not.

So the catalysts are in place. But yet you aren't seeing higher prices. Something is going to move the prices higher. It could be a debt default, it could be more economic unrest, I don't know what it is. Because the catalysts definitely are there.

What's going to sustain the rally is higher prices. Once you get silver, let us say above $26, and gold above $1,550, then you're going to see a lot more people coming to the market. Not because of some geo-political event, although it's possible. But primarily because prices are moving.

It's really an absurd situation when you think about it, but that's the reality of it. Higher prices are what are going to sustain the rally. The catalysts, what are they? I don't know. Because there are enough in place to take these prices higher.

Mike Gleason: We've been hearing more and more noise about potential lawsuits in the whole gold and silver price manipulation scandals. I want to get your comments on that, as well as what you made of the end of the London silver fix.

David Morgan: On manipulation, I mean I'm in the camp that it is manipulated. I'm also in the camp that it's extremely difficult to prove it. Although we're writing a new book on silver, and we have a whole chapter on manipulation. In my view, or in my opinion, it definitely proves beyond a reasonable doubt.

It's very difficult to prove something absolutely 100% completely true. But that's not how the law is set up. The law has set it up so it's beyond a reasonable doubt. I think our book chapter on manipulation proves beyond a reasonable doubt that the markets are manipulated.

You know, what I think of it? I wish them all the best. I hope they've got the best lawyers, sharpest guys on the planet that are able to bring the case before a jury and are able to get a fair settlement and non-biased judge and they're able to prove it. But I think that's very idealistic. I think that it's good that it's come up again, but I don't hold high hopes that it's going to go all the way through. But maybe it will.

On the London silver fix, I've addressed this before. I don't know how much of an impact it's going to have. There has already been some debate between some of the commentators in the silver and gold space between each other, and I've just kind of sat back and watched it.

I don't think it's going to have that huge an effect. It could but I'm just not sure. I'm going to basically keep my mouth well closed on that one, until I'm able to formulate an opinion.

We're only what, a week away? I think a week from today we're going to see the silver fix that had been held for well over 100 years come to an end. It will be group collection of input from Thomson-Reuters and I think the CMEs will combine and come up with some kind of a price that may then become the new "silver fix."

Mike Gleason: Switching gears here a little bit. You're always looking at where the demand is coming from for silver, there at the Morgan Report. I read in your most recent issue that solar demand is up 10%, for instance. What are some of the bright spots in terms of industrial demand for silver these days?

David Morgan: There are so many, and I'll get a little bit specific. But what I want to do is put it in the context of where we are with the explosion of electronic hand-held devices. I mean if you think back to a whopping 14 years ago, and there's probably \some 14-year-olds listening to the show, so they can't put it in the proper context. The point is that really you haven't seen this electronics explosion until the last decade or so.

The iPod, the iPhone, the iPad, or the Android equivalent, I don't want to leave out Samsung, all these other ones. I'm not paid by any of these people…that has brought into a massive demand on silver, in a very small manner. Meaning that the amount of silver per unit is extremely small. But the amount of units are running in the billions. Combining all the Apple products with the Android products.

There has been this huge surge, and that continues unabated. You're going to continue to see, even with as saturated as the cellular phone market is in the United States, it's not nearly saturated in China, for example. There's that market.

There is the solar market, which is on track to get to the projection that Jessica Cross made, from VM Metals, many years ago. That we would be at about 130 million ounces a year annually, for solar. That's not true, it's up about 80 million, but it could go ... It's probably going to go higher. That's one that's still going to grow.

The other one is LED lighting. This is just coming to the fore. They are superior lights, and use less energy, and are brighter. And they last longer. Everything about an electric light bulb has been superseded by these LED lights, and these use silver.

You're going to see this starting to come into the mainstream without people knowing about it. I mean people will buy them, and most people buy silver-containing products without ever really thinking about what is in them. Quite honestly, I don't think about all the rare earths in my cell phone or anything like that all the time.

The point is, it's needed. It's used, it's critical. It's absolutely indispensable. Because of those facts, silver is going to be used more and more and more in all of these electronic goodies that we see. The big areas will probably be batteries. This is something that we're writing in the book. And we'll explore in the Morgan Report in future issues. You know, everyone's all really hyped up on the lithium ion battery. Tesla is building this big factory to build lithium ion, lithium ion, lithium ion.

The deal is, silver is the most superior of any element for conducting electricity. It also does a good job of storing, and it's much more simple to recycle than the lithium. There could be somebody with some vision out there that's working on a silver-based battery system that may be superior in many ways.

In fact, there is a silver battery available in some laptop applications that are far superior. The thing about a laptop is, you know you only have power for a couple of hours. But think if you could have power for a couple of days. You know, so there's a lot in the silver realm that hasn't come to the fore.

Sometimes it's a higher-end product. Meaning that because there is a fair amount of silver use in these batteries, and I'm speaking about some of them. It's going to cost. It's going to cost more. But then that's what the market is all about.

Are you willing, Mike, to spend four times as much for a battery that allows you to run your laptop for two days, especially out in the field, than two hours? I know I would be. There are people that wouldn't be able to afford them. People that could afford it might be willing to spend that kind of money, for that ability.

I don't want to drone on too much, but there's a lot out there in the silver world that hasn't been expressed in a product today that's kind of lurking just behind the scenes, so to speak. That will be available in the not too distant future. That could have an impact on the demand side.

Mike Gleason: Yeah, that I think was definitely what makes silver such a fascinating and exciting metal and really an investment potential too, for someone looking to invest in it. Just the industrial demand is really amazing and very vast. They're finding new uses for silver all the time, just because of its incredible properties.

The mining shares have actually done quite well this year. I wanted to get your comments on that. They definitely out-performed the broader stock market and the bullion itself. What does that tell you? Is it a function of how the miners just got beat up so badly the last couple of years, that they were due for rebound? Or is this a leading indicator for the bullion?

Talk about what you're seeing there with the mining shares.

David Morgan: Well it's both. It's primarily a leading indicator. Again, I've been looking at this market and continue to learn. Overall, experience/data shows that when the mining shares are performing better than the bullion, it's a leading indicator.

Going back to that first or second question you asked, about what catalyst? I don't know, higher prices. You can say that because the shares are doing well, especially some of the higher quality shares, that we are going to experience higher prices in the gold and silver market, for whatever reason, in the not too distant future.

I look at it, yeah, they were certainly oversold. Like let's call it dead cat bounce. They're just due for a bounce because it's just so oversold. That's true. But because they have sustained it. Even with this flat metals prices, so to speak, or this wiggly metals prices, we haven't got any real sustained rally, in either gold or silver. Yet the shares seem to be resistant to follow along.

That's a clear indicator, that they're leading. And that, again, we're not too far away from seeing them come move in the metals.

I've been advocating ... My own book, I'll be honest, we write Money, Metals and Mining. We focus a lot of our energy on the mining sector. I've been saying for a while that I thought that the mining sector is really the place to put your money. But I also want to be consistent, and I've always taught, and will continue to, that you really, to have a precious metals portfolio, you must start with the physical metal first.

Even though what's the best value? In a lot of cases, the shares were a better value. Because in some cases you could buy a share of stock for less than the cash value. In other words, you could buy $1 for 90 cents, in some cases. And that wasn't just in a single case, there were a few out there, like maybe five or six. That had that kind of situation, where they were beaten up so badly, that they were selling for less.

You're getting the mining project, the management team, the copy machines, the computers, everything else for free. Because the cash in the bank was greater than what the shared value was. Those are rare situations, but those are definitely over sold situations.

Mike Gleason: Well great stuff, David, and before we let you go, tell people how they can get involved with your great service there at the Morgan Report. Also, talk about the upcoming Silver Summit this fall.

David Morgan: Okay. The best way to get involved is just go to themorganreport.com, get on the website. Get on our free email list. It is absolutely free.

If you're inclined to get really involved, and you're serious about this aspect of money, metals and mining, you can get our basic service. Basic service is like $10 a month. I mean it's less than going to Starbucks twice a month, it's really pretty reasonable.

Then there are services that are beyond the basic service that are for more advanced investors.

Silver Summit will be in October this year, I think it's the 22nd-23rd. It will be at the Davenport Hotel in Spokane. We're trying to get some new people in there, as far as somebody that hasn't spoken before. Of course I'll be there.

But we're trying to cover all aspects of the market, we also try to cover both sides of the market. In other words get a lot of establishment types that look at silver as just purely an industrial commodity, it has nothing to do with money, it has nothing to do with financial problems and all that stuff. They have that perspective. I don't hold to that one, but they do. So you can hear both sides of the argument.

Then we have a lot of mining companies, a lot of bullion dealers. It's probably, in my view, probably one of the best, if not the best, places to go for a silver-oriented presentation seminar.

Mike Gleason: It was great talking again, David. Looking forward to catching up with you soon. Hope you enjoy the rest of your summer.

David Morgan: My pleasure, thank you.

Mike Gleason: For those of you that haven't yet signed up for the Morgan Report, we have a special offer forMoney MetalsMarket Wrap Podcast listeners. The ability to get a no-risk trial of the Morgan Report, plus free silver. For any listener who signs up for one of these refundable subscriptions today, Money Metals will ship you a free one ounce Silver Eagle. To take advantage of this special deal, please look directly below today's podcast.

Well that will do it for this week. Thanks again to David Morgan. Check back next Friday for our next weekly Market Wrap podcast. Until then, this has been Mike Gleason with ILB. Thanks for listening, and have a great weekend, everybody.

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