David Morgan: Silver Supply Under $16 Is Limited By Mike Gleason, Money Metals Exchange
Serious Backlash Coming If Futures Market Breaks
Q&A with David Morgan
Mike Gleason, Money Metals Exchange: I’m happy to welcome back our good friend David Morgan of TheMorganReport.com and author of the book The Silver Manifesto. David it’s a pleasure to talk to you as always, how are you?
Mike Gleason: Well to start out I’ll ask you to comment on the market action here in 2016 so far. Now, gold and silver have done quite well, we had gold advancing on weakness and concerns in the equities markets earlier in the year. In March, we’ve seen it continue to do well even as stocks rebounded from a strong employment report. One would think it’s a bullish sign when we get good price action even with supposedly negative news for precious metals coming out. So give us your thoughts on the market action so far this year, David, and specifically why do you think the metals have done so well here in the early part of 2016?
David Morgan: Well a couple things, one to quote The Economist magazine, which is a pretty well-known and revered publication. They stated that, “This is the best start of gold mark in 35 years.” On top of that, the main reason is because the overall equity market has basically gone 20% down. From a technical perspective, you have a top in the stock market in the United States and other markets around the globe. So the most negatively correlated asset to equities is gold itself, not gold stocks.
That’s basically it. I think it’s pretty simple. I don’t think you need to look much further than that. I would add on another real key element to knowing that things are finally off the bottom and going to continue, backing and filling, up and down – but nonetheless, the bottom is in – is the volume. The volume is substantial. The amount of flows into the gold ETF is the greatest that it has been since 2009, which is after the 2008 crisis but the first one that was off the bottom were the precious metals.
Most of us know, or at least those who listen to this show know, that gold basically bottomed in 2008 along with silver. Silver went from basically the $9 level and over several months made it all the way to $48. Gold bottomed, and I forget the number, but it went up to $1,900. Are we going to repeat that? I think in the long-term yes, but in the short-term, gold’s ahead of silver.
Mike Gleason: That leads me right into my next question. We do have gold outperforming silver so far this year, which generally we don’t see when the metals as a whole are rising. That means that the gold to silver ratio has actually even gotten a bit higher, sitting at about 82 to 1 as we’re talking here. Are you concerned that silver is lagging gold a little bit?
David Morgan: I am concerned. I believe that we have a non-confirmation. I like to see that the whites outperform the yellow and that non-confirmation does concern me. I think that we want to see silver over $16 and then things will proceed upward, probably even more than they have so far. In other words, silver will either play catch up or it won’t. If it doesn’t, it doesn’t mean gold won’t continue (going up). What it does mean is that there might be some more work to be done.
As far as how these markets come off of bottoms, usually what happens is the big money, the smart money moves into like the large gold stocks, and they have. We’ve seen very big volume into the large top tier mining companies, and they have moved substantially higher on a percentage basis. You’ve seen that across the board, you haven’t seen those smaller stocks come up as strongly.
Silver of course is a subset of gold. It’s 85% correlated with gold. And the silver stocks have performed well. So we’re really just kind of keeping our eye on silver. It doesn’t mean much other than we need to pay attention because it could indicate that again, we might see kind of a pull back, and we might come back all the way to where this launch took place. Technicians can always pick their sweet spot. I’d say about the $1,200 level. I put that out for our members that I was long gold at $1,200. Obviously that’s paying off well so far and of course I’ve put my stops up, so I’ve protected the profit.
Mike Gleason: Certainly the mining stocks do quite well, you eluded to that a moment ago. They seem to be leading the bullion a little bit. Is the worst behind us in the mining industry or is there still more carnage coming?
David Morgan: Great question, and of course you have to really answer it correctly, you have to answer on a case-to-case basis. But from a broad brush perspective, yes the worst is behind us for the miners. There are of course case-by-case basis that companies that won’t make it that need either a merger and acquisition type of situation that they have assets of value or they just can’t get loans at this point in time to continue their projects.
And that means that there will be some even though that from, again a broad perspective things have bottomed on individual cases, that there may be some favorites out there in the lower tiers, not to mid-tier so much as the speculative tier that may not make it even though gold and silver look to continue onward. Again, I can’t give a specific answer. I will give the fact that for example that we had SVM as a short term trade for our members, the members of our website. And that stock doubled and that happened while silver basically did very little and gold was just starting it’s move.
So the equities can really take off. Silver sat there from what you said, just under $14 to not quite $16, and I don’t know what the percentage is, 2 bucks on $14. 100% or a double on a silver stock, that’s a pretty liquid stock, is definitely an outperformer to what the metal itself has done.
Mike Gleason: We have a mutual friend, Steve St Angelo who runs the fantastic SRSrocco Report website, he’s a bit of a peak silver guy. Where do you come down on that? We’ve seen declining production coming from places like Mexico, a huge silver producer, and other countries that produce a lot of silver, certainly here in the States. Looks like our supply is dwindling, mine production is dwindling. Where do you come down on that? What are thoughts on the potential for peak silver?
David Morgan: Well, first of all, Steve and I are pretty close and we