David Smith: Turning Points Appear Suddenly, So You Must Be Prepared…

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David Smith

David Smith: Turning Points Appear Suddenly, So You Must Be Prepared…

Mike Gleason (Money Metals Exchange): It is my privilege now to welcome back David Smith, senior analyst at The Morgan Report and regular contributor to MoneyMetals.com.

Well David, happy new year, my friend and thanks for joining us again. How are you?

David Smith (The Morgan Report): I’m doing good, Mike. Looking forward to a very exciting year. I think we’re going to have all sorts of interesting things to be watching and reacting to.

Mike Gleason: Yeah, it certainly looks that way. And we’ve got lots to talk about today as usual. I’ll get right into it. As we’re talking here, the metals are pulling back a bit, but both have continued to perform well in the early going of 2017. So, where are we here in the gold and silver markets? What’s driving the positive trading action over the last few weeks? And do you think it’s sustainable?

David Smith: There are a lot of conflicting currents out there and trying to make sense of it all can be really difficult. I think what’s really important is that people need to have a plan that takes into account the fact that there are a lot of unknowns, but yet if they are a believer in the gold and silver story, as we are, they should be accumulating.

The simplest thing to do is to just have a dollar cost averaging where you buy a certain amount every month that you’ve committed to do regardless of the price. Because if you try to catch all the squiggles, you really amp up your own concerns and make it difficult to make decisions that aren’t emotional-driven.

It’s also very possible, if not probable, that you miss the longer picture, because you’re trying to catch the little squiggles rather than realizing that we’re in a long-term uptrend that’s likely to continue for a number of more years.

Mike Gleason: The setup coming into this year has looked a lot like last year. We’re coming off a December rate hike by the fed, the only one of the year in both cases, 2015, and 2016. A dollar, that appeared to be overvalued and gold and silver looking quite oversold. Last year we had a fantastic start for the metals and the miners. How do you see things going this year? Are you looking for a repeat of 2016, David?

David Smith: I think that there’s going to be a certain similarity to it. I remember last year the first couple weeks right up into the time that we’re talking about now a year ago it was really pretty discouraging for the metals and the miners. I specifically remember on January 19th, which is tomorrow will be a direct anniversary of that, it looked like the new lows were going to be made and sustained. But by the close, that had turned out be a bear trap. The market firmed up and it never looked back.

I don’t know if we’ll have a strong first five or six months as we did last year, but I think it will be stronger than most people expect. And I think the risk for people that believe in the precious metals is either being out of the market, or not having their full allocation, rather than having the position, because I think there’s a tremendous amount of energy that’s pushing these metals to the upside even though we see volatile days like we’re looking we’re looking at today.

Mike Gleason: Certainly, sentiment is pretty low right now among the investment world towards precious metals. Many are thinking that there’s no reason to own precious metals now that we have Donald Trump in the White House.

We’ll get into that a little bit more later. What do you have to say about sentiment right now? What’s it feel like out there to you? Obviously, you talk a lot in the mining community and the precious metals community as a whole. What are you seeing in terms of sentiments? Are people cautiously optimistic? Is there just very little buzz happening there? What are you seeing?

David Smith: Well the sentiment of the people that produce the metals, I think, is much more positive than many of the people in the investing public. The thing is, as you know, Mike, if you try to base your investment decisions on going with the crowd, you are not going to do too well. You really have to be a contrarian. It’s difficult. It’s difficult to buy when you see that a lot people think the metals are going to go lower.

But if you wait until they all feel that they’re going to go higher, first of all, the crowd is usually not right on the swings. Secondly, by the time you do that, a lot of the price appreciation that you were looking for has already taken place. So, sentiment is an indicator, I think, of an opportunity to buy at a better price and a better sustainable situation when you go against that rather than try to flow with it.

Mike Gleason: How about palladium, David? It’s been outperforming the other precious metals lately. Maybe it’s now starting to bring gold and silver with it. It was the best performer last year. Now we’ve seen this before where palladium leads the way among the precious metals. What’s behind that correlation and do you see it happening again here?

David Smith: I think we’re looking at something very similar to what happened in late 2013, early 2014. David Morgan and I both commented on this on a major article that we had that was published in Prospector News where we noticed that and mentioned that palladium oftentimes, is a leading edge for gold and silver. They’ll follow along a bit later. After we wrote that article, palladium managed to serge almost $300 an ounce from where we had been discussing it. Gold and silver were also quite strong.

It may be for different reasons this time, but I think there’ll be a similar type of echo effect on that. Palladium is becoming more and more of a situation where you are looking at supply issues. And demand, not only from industrial, but also from investors is ramping up.

Mike Gleason: So even though palladium is maybe towards the top end of a trading range that we’ve seen for several years now, this $750 to $800 level, do you still think there’s some value there, or maybe is it better to look at some of the other metals over palladium?

David Smith: Well obviously, it would have been better to buy $100 lower, but the thing is, I think, is one of the things that the market is not totally discounting is that there’s been a very large withdrawal of physical supplies from one of the major ETFs, which indicates that there’s demand out there for palladium, which is maybe greater than what the market thinks.

So, you have the price of the metal itself and the ETF trading about where it was a year

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