Coming up David Smith, Senior Analyst at The Morgan Report and MoneyMetals.com columnist shares his thoughts on the potential effects of the newfound rise of digital gold based investments. And he comments on some new industrial applications for gold and silver that could have a major impact on the supply-demand fundamentals for the metals. Stick around for a fantastic interview with our good friend David Smith, coming up after this week’s market update.
Q&A With David Smith
Mike Gleason: It is my privilege now to welcome back David Smith, Senior Analyst at The Morgan Report and regular contributor to MoneyMetals.com. David, thanks for joining us again. How’ve you been sir?
David Smith: Very good Mike, it’s great to be back.
Mike Gleason: Well, before we get into other topics such as the Silver Institute’s latest report on the silver market and also the article you wrote for us recently on digital currencies, crypto-currencies, and so forth, I first want to have you set the stage here on where we are and where we’ve been in the metals markets. The year got off to a good start in gold and silver and then in April, we saw the typical smack down on the futures markets. Silver, for instance, gave back nearly all of its gains during an unprecedented 16-day losing streak and fell about 12% over that period.
Now here we are talking on Wednesday afternoon. We’ve seen the metals bounce back off their deeply oversold levels. All of this back and forth is obviously very frustrating for metals investors, David, and it’s getting quite tiresome to see these bullion banks constantly pushing around the price and ultimately capping it on the upside. So, is there any end in sight here, and how effective will these manipulation schemes continue to be because you’ve got to think that they will come to an end here at some point, right?
David Smith: Well, yeah, and I share the view of people who are pretty worn out by this. Like David Morgan likes to say, the declines will either wear you out or scare you out. So, it’s understandable because people think it’s just going to be more of the same as far as the eye can see. But I do believe that there are a couple of very important factors that are starting to make their presence felt in the market, or will be in the very near future, which are going to start really eroding – and fairly significantly – the ability of the banks and the central governments and the Federal Reserve and the leasing programs and all this to cap the price on the metals way below where they should be if we truly had a system where price discovery operated as it’s supposed to and the price of the metals will be much higher.
I think as we see this falling away, this ability to manage things so to speak, we’re going to see stronger and more sustained upward pricing on the metals. Not so much the big up and down valleys and peaks that we’ve seen but more of a fairly substantial uptrend where the corrections are relatively minor and shorter-lived and the move to the upside is more enduring and more powerful. That’s the promise that these changes hold out to our long-suffering investors and those people who either would like to add more physical metal or are simply asking themselves, “Should I get involved initially?”
Mike Gleason: It isn’t much fun being a bullion investor these days. We’ve seen significantly more clients selling metal in recent months than we did before. There are, of course, plenty of legitimate reasons for individuals to sell metal and raise cash. However, some are simply getting tired of getting punished for being right. They see the dollar as terribly flawed, and it is. They expect consequences for never-ending federal deficits and the explosion in debt. They see the financial system as a house of cards built by crooked bankers, but that house just keeps standing, and the market rigging continues as regulators turn a blind eye. The dollar seems to be holding its own despite the fact that the full faith and credit of the U.S. government isn’t what it once was.
It is a special kind of frustration to watch as the number of reasons to own bullion keep growing while none of these fundamentals seem to show up in the price. What would you say to the tired and frustrated metals investors?
David Smith: First of all, just within the last few days, the U.S. dollar has been making a very sharp drop. It’s down about 160 basis points, and it could be the bottom here for a while, but if it keeps on going, we could see much lower prices, which is traditionally very supportive of higher bullion prices. Also, gold and silver have been strong recently. The mining stocks have been really trashed for the last several months, but the point is, once the metal prices firm up and turn around and these things start receding in the rear-view mirror, the market being a looking-forward mechanism, will anticipate this before you or I or the average person on the street can put our finger on it and say, “Yeah, the trend has changed.”
What keeps me optimistic on this is first of all, there have never been more elements, which none of us can say, “Okay, this is going to cause that and when.” But there’s never been more elements which lend support to the idea of the wisdom of holding gold and silver physically as an insurance policy. It’s an asymmetric trade. In other words, a person doesn’t have to put half of their net worth into the metals. They can put in 5-10% or if they’re really bullish, 10 or 15 or 20%, but even a relatively small amount dollar-wise in your possession is what we call an asymmetric trade. In other words, if even part of what we think has the potential to happen and may happen in the near future takes place, you will have a return of several times what you put in. So, a fairly small commitment can give you a fairly substantial coverage to cover and protect a lot of your other asset classes.
I can’t think of any other asset class that you could say that about now. Certainly, not the stock market. Certainly, not real estate. Virtually all of these asset classes and then bonds, which have been in the 30-year bull market. These things don’t have anything like the upside potential for the relatively small amount of commitment that we see in the precious metals today.
Mike Gleason: Last week the Silver Institute released the World Silver Survey for 2017 and perhaps the most note-worth piece of information in there was that silver supply, for the first time in 14 years, actually declined year-over-year. It also marked the 4th year in a row where we’ve been in a deficit. Talk about some of this data and then also give us your thoughts on when we might finally see these bullish supply/demand fundamentals for silver