silberinfo: David, 2008 had a great beginning with silver over $21 but it ended poorly. From a fundamental point of view not much has changed. Why the high volatility?
D. Morgan: From my perspective the market was overbought in March 2008 and in fact I sent a sell signal to all Morgan Report subscribers telling them to take some money off the table. Many did. I did not put out a buy signal until September 2008 but was too early and watched the market go down further. The last buy signal was around the 10th of December 2008, after the metals market had made a clear bottom. We have already taken partial profits on that.
For those who wish to trade, using our signals, we recommend no more than 25% of the portfolio. The rest is held for long-term gains.
There are several reasons for the volatility in silver:
- The over leverage used in all assets classes, including the precious metals
- Banks short selling of silver in massive quantities
- Price movement gets exaggerated due to silver being such a small market
silberinfo: Do you expect a similar volatility for 2009?
D. Morgan: Yes, at this point (subject to change) I do not expect to see silver take out the $21 level this year. I want to be cautious here—silver can at almost any time take off on its own, without rhyme or reason. I have studied this market for more than 30 years and yet silver can confound the best of us. Because so little physical silver remains for investment or industrial use, we are in a “setup” that could launch the silver price at any time. Having said all of that, it is still my studied view that because all asset classes have been falling so hard for so long, the deflationary mentality will continue for many more months. This could abate silver’s next big move up for several months. Investors should take advantage of this by planning purchases of real silver and gold for the next several months. Also this applies to the mining equities as well, but right now I favor the physical market over equities, for many reasons.
silberinfo: The Gold-Silver Ratio currently lies around 1:70. What is your opinion regarding the future development?
D. Morgan: Over time I expect to see the ratio move in silver’s favor. At the top of the market it would not surprise me to see 16 to 1 or even 10 to 1. This would be on a buying panic and I do not expect that ratio to hold for very long.
silberinfo: You are an American and also a bit of a patriot. Do you agree with Ted Butler’s excellent work regarding the allegations of a silver price manipulation on the COMEX?
D. Morgan: Basically yes, and if there is any difference it is this. My view is that the basic trend cannot be manipulated. In other words, silver and gold are in massive uptrends that will unfold for years—in my opinion, at least 10 and more likely 15 to 20. Within the major trend, the price movement can be controlled to a certain extent by selling pressure or buying pressure. I have been over this so many times . . . I urge your readers to go to www.Silver-Investor.com and look at my past work. You can read what I have said again and again about how all markets move and in particular the silver market.
silberinfo: The iShares Silver ETF states an inventory of around 250 million ounces. Do you have knowledge regarding the whereabouts of this enormous inventory, and above all, would you say that the entire 250 million ounces physically exists in their vaults?
D. Morgan: I think that the silver they “display” does exist but not necessarily in their vaults. I recently did a radio interview on this at www.financialsense.com, and I also wrote a public domain article titled, “Silver—Draw the Line” (both in English). These outline many of my thoughts on the Silver ETF.
silberinfo: In addition to the iShares Silver Trust, there are a few other ETFs/ETCs on silver. Do you expect more to come in the near future?
D. Morgan: I’m not sure we will see many more Silver ETFs but I do expect to see other types of silver investment vehicles. I am actually working on a few right now but am only comfortable giving that information to my members first. Once my Morgan Report subscribers have the opportunity, then I am more comfortable discussing it in detail.
silberinfo: The Dow Jones Industrial Index has been going south for months now. Do you think the worst is behind us, or is the financial crisis really just getting started?
D. Morgan: I believe we will see a pause in the market decline, but it is far from over. I am looking for a Dow below 4000.
silberinfo: Mining companies usually have a positive correlation to the stock markets. Do you see the possibility for a diminished correlation or even a decoupling, and if yes, why?
D. Morgan: In the advanced stages (once we get through 2009), the golds and silver do decouple from the general stock market. I think this time it will be the biggest bull market in mining equities ever experienced, because by the time the investment pool of silver dries up there will be no alternative. Especially if one of the Silver ETFs turns out to be less than advertised.
silberinfo: What is your view regarding explorers and producers right now? What do you think about juniors and the big mining companies? Which sector do you prefer in the short, mid, and long term?
D. Morgan: I have always taught big money in bigger companies. There are many reasons for this and it is explained to my members in a separate report called, “How to Use The Morgan Report,” which is the first thing a paying subscriber should study. Once you own real metal, top notch companies, then you can speculate. Why not? Some have done fantastic for us, however I cannot brag about this for the past several months. Right now investors/speculators must be very careful. I think it might be a good time to build cash and pick stocks a bit later.
silberinfo: Many explorers and juniors, some of them with great properties, have had problems raising money and could complete financings only under adverse conditions; i.e., many juniors had to dilute their capital tremendously. Do you think that they can break out of the vicious cycle (deep share prices equals more dilution equals even less share price potential for the future)? What is the best way for an investor to go right now?
D. Morgan: Again, build cash, but if you can figure out who is going to survive you might take a small position. The list we have for speculation is good for purchase right now, in my very studied opinion. But these are companies for the most part with production and decent cash flow. Some have diluted but not to the point of killing their shareholders. We have only one or two shoot-for-the-moon type of speculations right now, one with off-the-charts grade and another that did a stock split, and it was so favorable at the time, that I could not pass up telling my subscribers. Unfortunately since that time this company has been hit hard, but it has so many ways to profit that we are sticking with it.
silberinfo: Last year in spring, right after the beginning of the big silver price correction, you expected the market to hit a bottom in summer and then to recover by the end of the year. You were able to underscore this with typical chart patterns. As we all know, the correction took longer and brought the price of silver and especially the share prices of big and small companies to much lower levels. To be fair, the reason for that lies clearly in the extent of the financial distortions that caused the current economical crisis. Long story short: How is your current outlook, and in what way is it influenced by the crisis?
D. Morgan: Not to sound defensive, I did get the top correct and was too early on the bottom. I thought in April of 2008 that the metals markets would see the old highs: 1000+ gold and 21+ silver, by the end of 2008. By the time we got to mid summer, the data and work that I use gave a much different story and of course I presented that to all Morgan Report subscribers. I did suggest that they complete purchases by the end of September 2008. I wish I could take that one back and say the end of November, then wow, I would look like a genius.
In my view if we might project into the future, say 2012 or so, and silver and gold are far higher in paper price, getting in by September 2008 might look very good. The point I am making is no one can call it perfect every time and as long as you do not over leverage and are willing to hold, this market will be coming back.
The financial crisis that I have forecasted for so long has come true. However, I did not expect the mining stocks to be hit so badly. I misjudged the amount of hedge fund participation and some of the methods used by the banking establishment to put pressure on metals prices. Gold (the metal!) has pretty much functioned as I expected. Silver actually has done about what I expected but did get below what I thought was the initial low. Having touched the major uptrend line—technically we are still in a bull market in silver and having gone from $8.80 to the current (mid March 2009) $13.25—we have a gain of about 50% in a little under three months. This may not make the people who bought silver above $14.00 very happy but all investment classes are constantly changing hands.
Specifically, more and more people are gravitating to gold and this will spill over into silver at some point. It is so interesting that gold is still available anywhere in the world, but try buying silver . . . as you know, it is much more difficult.
silberinfo: If we remember right, it is one of your long-held views, that the current bull market in silver will end somewhere between 2011 and 2013, after a huge exaggeration in the price of silver. Does the current crisis influence this? In other words, can we expect the bull market to go even further and the silver price to hit an even higher level, now that all central banks have started printing money at unprecedented levels?
D. Morgan: Somewhat. Like anyone in my industry I would love to look back and say, “Hey look, I got that right and that also.” But the bottom line is, much more than being an accurate forecaster, it is better to teach the underlying principals. The main principal is all fiat monetary (debt-based) systems end. And in all known cases, they end rather badly. So, you must have the right kind of investments to prosper for yourself, your family, your business, and your neighbors. This is quite simple, yet very few do it. You must become educated, you must study, ask questions, learn.
Yes, due to the current deflationary forces overtaking the monetary printing that is going on worldwide, I do see the top coming perhaps as late as 2016. But let’s take it one step at a time, much like the master Richard Russell. I try not to tell the market anything, I want to watch the market carefully, and when it is kind enough to tip its hand, I let my members know what I am seeing.
silberinfo: If you are going to invest your money, do you solely buy physical silver or do you also invest in silver mining or silver exploration companies?
D. Morgan: I spread it out exactly how I teach. First, physical metal; then, the top-tier companies using our priority system; and then, bet a little money to win a lot—speculate, which is the fun part of the market but not where you put your big money.
silberinfo: For a very long time now we experienced, year after year, an increase in the quantity of mined silver. Do you think that we have reached the peak or do you think it could be further ahead?
D. Morgan: I think we may be near a peak right now, since 70 percent or so of all silver comes to the surface as a result of base metal mining. The slowdown in lead, zinc, copper, and other base metals means there will be less silver coming to the surface and this could last a few years.
silberinfo: We recently attended a presentation of Frank Veneroso, who talked about the splendid outlook of gold, at least from his perspective. When asked about silver however, he offered little enthusiasm and seemed to be a true silver bear. His reasons were an increasing worldwide mine output, especially in China, as well as lower industrial consumption, big silver stocks, and so on. He generally put silver in one category with base metals. As you are a silver expert and “silver bull,” how would you reply to him?
D. Morgan: First, China has stated publicly in a major financial publication that they will NOT produce enough silver internally and MUST import more silver to meet their current demand. This was within the past few months. Secondly, most people who have a banking background know how the banks run the “hedge books” on the silver market and are confident that they (the bankers) can pretty much do with silver whatever they wish. Why not hold this view? Every time silver really runs to the upside it seems to get smashed back down! My view of course is that there are enough intelligent people on the planet to see the merits of owning real silver that the managers lose control and a true free market emerges in silver.
silberinfo: Where do you see the price of silver in, let’s say, two years?
D. Morgan: In two years, above $20, possibly in the $35 to $40 range, but this is so hard to forecast because all long-term resistance goes away after the $25 level or so and at that point anyone who owns silver (with very few exceptions) is holding at a profit. When this takes place, markets tend to really move rapidly to the upside, because all current investors are holding tightly because no one knows “how high is high”? In other words, how high will the market get?
silberinfo: Please take some time to talk about any subject that is heartfelt for you.
D. Morgan: Thank you! I must mention education. It is my opinion that Americans have lost the insight of just how valuable an education is. This is not necessarily a formal education either. In days gone by, there were many “self taught” people—once a person could read, the opportunity to better himself was only as far away as a walk to the public library. In my opinion, the hunger for knowledge just does not seem to exist as it once did. But if you look to Asia, that is a whole different story—learning is highly respected and valued. In a way I think the downturn we are all experiencing will be beneficial from the aspect that most systems do better under pressure. This means that some, certainly not all, Americans may begin to question what is valuable.
silberinfo: Do you ever get tired of discussing the silver market?
D. Morgan: Yes, there are days I get a bit burned out on the topic. And I do have other interests and enjoy many things outside of the investment business. Having run triathlons for several years was a great diversion and a healthy one as well. I do not have the time to train properly for them now, so my last triathlon was probably completed in the 2007 season. I do have a family and love to spend time with them. However I am passionate about the markets and have been all of my life. My mission statement is, “To teach and empower people to understand the benefits of an Honest Monetary System.” As you can see, silver and gold are not even mentioned in my mission statement but they do play a very significant role, because there are no trust issues with real money. All of recorded history proves both silver and gold have been a means of payment and a store of value—exactly what an Honest Monetary System needs.
silberinfo: Thank you, David, for your knowledgeable answers to our questions. We wish you and your family all the best for 2009!
It is an honor to be.
Mr. Morgan has followed the silver market daily for more than thirty years. Much of his Web site, www.silver-investor.com, is devoted to education about the precious metals. To receive full access to The Morgan Report click the hyperlink.