Ask The Expert

Ask The Expert - David Morgan - April 2022

ATE with David Morgan

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David Morgan is a precious metals aficionado and the author of “The Morgan Report,” covering economic news, the global economy, and how to make substantial capital gains by investing in the Resource Sector. He has authored or co-authored numerous books on silver investing, including Second Chance, Get the Skinny on Silver Investing, and The Silver Manifesto. David has appeared on CNBC, Fox Business, and BNN in Canada and has been quoted by The Wall Street Journal, Futures Magazine, The Gold Report, and numerous other publications. His ideas can also be seen in the movie Four Horsemen, a feature documentary.

In this edition of Ask the Expert, David answers six of your listener-submitted questions, including:

  • Should silver trade more like a monetary metal or an industrial metal?
  • What is a realistic price goal for gold and silver over the next 3-5 years?
  • Is there anything wrong with stacking generic bars?

For the answers to these questions and more, listen here:

Announcer: You're listening to "Ask The Expert" on Sprott Money News.

Craig: Welcome back to the Sprott Money News, sprottmoney.com "Ask The Expert series." It's now April 2022 and it's time for your latest update. I'm, of course, your host, Craig Hemke. Joining us this month is Silver Guru himself, David Morgan. David, of course, the publisher of "The Morgan Report" that you can find at themorganreport.com. And he has been following the silver markets, gold markets, monetary metal, sound money advocate for laundry than you would probably care to admit. David, thank you for joining me.

David: Well, Greg, thanks for having me.

Craig: It's always fun to visit with you, my friend. And hey, before we get started, I just want to point out and remind everyone that this content is brought to you by Sprott Money. Sprott Money, of course, is an online bullion dealer based in Toronto, but they'll also store your metal for you too. So if you want to thank them, not only for this or the monthly wrap-up or all the great articles that are posted on their site, or the monthly precious metals projections that I do with Chris Vermeulen...if you want to thank him, throw him a bone, at least give us a like, or maybe subscribe to whatever channel you're listening. That'll help us widen the net

.But one more thing, Sprott Money just received in some First Majestic one-kilogram silver bars. I don't know if Keith drove them up there himself, but I do know that they are actually only available for Canadian customers. Well, that's not very fair. But if you're a Canadian, and you like kilo bars, these are pretty cool. So you go to sprottmoney.com, look for this exclusive product on the website. You can order it directly on the website. Of course, you can pick up the phone and give them a call at 888-861-0775, and maybe Keith Neumeier will just deliver it to you as well if we ask him nicely.

Anyway, David, we've been collecting questions for you from Sprott Money customers. I've got six of them. Should we just dive right in?

David: Let's go for it.

Craig: All right, then here we go. This is kind of a longer one, but I'm gonna read the whole thing so you get a real feel for what this person is asking, okay?

David: Sure.

Craig: And then I'll try to condense it for the presentation part that we put on YouTube. But the actual question this person sent in was, "Why is this time any different? I would characterize myself as a new, less than two years, to holding precious metal as a monetary asset. I want to believe that through sound money, the world will be a better place. Fix the money, fix a lot of problems. I have taken to looking up old videos on the internet from 2010 however, and following the hype and the headlines from back then with the advantage of hindsight now in the metals market. So when viewing those videos, through the lens of said hindsight, I see very similar stories being retold today. Of course, price isn't anywhere near where it was, which ultimately leads me to the question, why is this time any different? Which I guess, are we just 12 years further along toward the end. Anyway." Why is this time any different, David?

David: It's the first time that's ever been global. We've never had a currency crisis or a fiat failure that encompassed everyone. So that's what's different. And it means that there'll be, you know, more potential to the downside than we've ever witnessed like during the hyperinflationary depression, or even the Great Depression in the U.S. Those are two separate case studies we could look at case studies. We call them case studies. They were real events. One's a hyperinflationary depression where the currency is shot and it's worthless, or the debt-liquidating depression of the 30s, where money actually became more valuable, but we were on a gold standard back then. So it's different because it's going to include everyone.

Craig: Yeah. Right. I think that's a very good answer. And we're also...I don't think...I mean, you live through 2010 just like I did. Contrary to this question, I just don't think that the level of excitement or interest in the precious metals right now is anywhere near what it was a dozen years ago. Do you?

David: Oh, I agree. And, of course, you know, my age. I mean, you know, back when I started in the honest money movement, because that's what we used to call it, you know, most average people were aware that silver was in circulation, and, you know, we're off the gold standard and that meant something. But, you know, as the years wore on, less people understood what was really happening. And so, there was actually a more I'd say enthusiasm in the metals markets when I was a younger man and the investment conferences were few and far between, but they were very well attended and most people there were very savvy on the money question. And the money question really has gotten distorted as you know, Craig. It's you know, MMT, Modern Money Theory. "Hey, we could print all we want without consequences." Oh, yeah, we're gonna find out.

Craig: That's for sure. That's for sure. All right. Well, to that end, that leads us right into question two, nice job. We've got the next FOMC meeting coming up in about two weeks as you and I record this. About the only question at this point is, you know, how high of a hike are you going to get in the Fed funds rate? And are they going to start announcing, you know, to try and to run off the balance sheet? In the end, the question is, do you think that, through this, the U.S. can avoid a recession, which would ultimately lead to more QE?

David: I do not. I don't think there's any way possible. I hope I'm wrong. I don't see how you can. I mean, increasing the interest rate, of course, puts a higher price on everything. But really, it's more of a supply situation with the food and the energy and the energy cliff. And because of those facts, I don't think you're going to be able to avoid a recession.

Craig: Do you get the sense that maybe the stock market is looking ahead to the rate cuts that will be coming but the precious metals markets are still looking at the rate hikes instead?

David: I think that's a good way to frame it, Craig, but I want to make sure that everyone understands that increasing the interest rates at these levels means absolutely zero for gold. Now, before you start hitting the comment button, the mainstream financial press will make all kinds of music about it. Interest rates up, gold down, interest rates is up...The only time that interest rates truly affect the gold price in the long term, not in a short blip, where everybody's telling us that it's affecting gold, is when the interest rate is above the inflation rate. And we're at a known 8.5% inflation rate, which is really not the true inflation rate if you used statistics from 1980. But regardless, it's just called 8.5%. So, until you got to 9% interest, where you have a 0.5 or half a point positive above the inflation rate, is it going to do anything to gold in the long term. In the short term, they're gonna make all kinds of music. "Oh, interest rates are up. Look at what it's gonna do to gold?" Yeah, it will, because the traders will push it down for a day or two, two days, a week, maybe a month, but it really longer term doesn't mean anything. In fact, people that understand this are more apt to buy gold knowing that it's almost impossible to get the interest rates to a level where you have a true rate of return basis, the, you know, the interest rate over the inflation rate.

Craig: All right. As we record this, David, it's April 21st. I think it was yesterday, maybe the day before that the latest supply and demand numbers for silver were put out by the Silver Institute. What did you make of those? I assume you've seen it.

David: I have and want to choose the right word, not happy. Okay. Look, the way that was framed, and certainly, Craig, correct me if I misread it, it was implied or stated that the investment demand was so so, ho-hum, not very much, languishing, I don't if they used the word languishing. But the implication was there wasn't a lot of investment, which absolutely...I don't know the numbers for 2021, but I know the numbers for 2020. And that's an absolutely inaccurate statement if they're...the way I read, it means that it's been lackluster for the last couple of years kind of implication, because it set a record in 2020 beyond belief, right? The amount of investment demand for silver, physical silver, through the ETFs and retail markets was 530 million ounces. It was greater than the amount used for the industrial side. It was a record-setter. We've never seen that kind of demand in silver before. So to come out with that statement, I'm a little disappointed to put it in polite terms.

Craig: Yeah. All right. Well, my friend, we're already halfway done. So we are speeding down the backstretch. And we're heading into question number four. And I guess this is kind of...again, I guess this is a pretty good segue from that last one. You know, silver hasn't been recognized as a monetary metal for quite some time. But it often trades as one. You know, trade sometimes tick for tick with gold. Should, you know, going forward, you know with green energy and everything else...should silver trade more like a monetary metal or an industrial metal?

David: That's a tough one. And I could argue both sides. It trades as both. I mean, during times when there's a run that gold is going to trade more like a monetary metal, and during times when everything's great, and let's say we have real rates of interest that mean something, that would trade more likely industrial metal. But silver never asked the question, "Are you buying me to use me in a cell phone or are you buying me to stack?" You know, it doesn't ever know. It's a demand. It's just how does the demand fluctuate and the demand is so strong on the industrial side going forward that it leaves less and less available for silverware, silver jewelry, and investment. And this is basis what Matt Watson did in his study going out to 2050. So, as I said in a recent update I did on my weekly podcast, I do it by myself, my weekly perspective, that if you want a legacy investment, I really can't think of one better than silver for the long term. It doesn't mean you put your whole life savings into silver. Not at all. But if you're in your 20s, 30s, or even 40s and you want something to take care of your family going, you know, 20 years out or more, the trend is pretty clear. Silver is going to be more and more difficult to get and it's going to be more and more in demand.

Craig: Yeah. Well, that makes me think I'm gonna flip-up questions five and six and give you question six next because, again, you kind of walked right toward this one. And then we'll wrap up with question five. But what is then, in your mind, a realistic price goal for gold and silver over say the next three to five years?

David: Okay. For gold, I think a realistic price is $5,000, but I also know from, you know, the years I've been involved in this industry that when the 1980 crisis hit, and that was just a U.S. phenomenon. It wasn't a worldwide crisis like we talked about on question one. It overshot. So the way to get gold back into the monetary system, in theory, in 1980 was to have $400 an ounce gold. You could have put the m zero-based money into gold only, and every piece of paper would have been represented if your price go to $400 an ounce. We all know it. We might not know the date. I do. It happened to be my birthday, but January, 21st, 1980, it peaked at around $850 in the spot market, $875 in the near futures market, which was double what you would need to have a full cover of gold in 1980.

Fast forward to your question. I'm coming back to it. I haven't forgotten it. I'd say $5,000 but the cover ratio now is somewhere around $15,000. And if you go to what happened in 1980 and it exceeds that by double, you're looking at $30,000. Am I predicting those numbers? No, I'm not. I think this time we just don't have enough awareness probably or it's going to be participation. How many people run the goal is what it's really gonna boil down to, and then the subset of that, Craig, is you've done such a great job on Sprott. I'll shout out for your public edification because you deserve it, is how much of that gold is in the derivatives market and how much is actually banked in, you know, a vault somewhere? And that's a pretty interesting question.

So you can have gold exposure and maybe benefit from the rise to $5000. But if there wasn't that, like in the 70s when I started, you didn't have many options. There was some gold options from Mocatta. I mean, they made their own market, but it was such a small market. But now you've got all kinds of derivatives. So now, of course, well, David, $5000 Gold, what does that mean for silver? And the answer is the previous question. If there's the monetary demand, which I believe there'll be strong monetary demand, then I think the gold-silver ratio will drop. So if you look at, you know, what a 50:1 ratio, you're looking at $100 silver, and if you look at half of that, you're looking at $200 silver. So I really think...I'll go with the late great Jim Dines. Jim put in print many times $200 silver, so we're gonna play that game. I'll play it. I've already said a $100. So I'll just double it for the audience.

Craig: Well, and that again, you know, there are fundamental factors too, like the previous question about silver as an industrial metal. I mean, they're pretty rampant. What seemed to be verifiable reports of shortages of metal on the LME in London, you know, not just nickel, but zinc and copper and palladium. I wonder if that fever kind of spreads over to silver at some point. Do you think that's a possibility?

David: Oh, absolutely. That's kind of one of my main themes is that when the run to go get serious down to Main Street from Wall Street, people are going to say, "I'm not buying gold. It's $3,500 an ounce. Well, look at silver. It's only $60. I'm buying it." And then they go to buy it and they find out that the spread's even greater than it is now, right? So you're gonna make up a number $75 bucks for $60 silver or whatever. But I don't think that'll deter the market. It certainly hasn't since the Wall Street silver crowd came on board.

Craig: Then that gets back to the investment demand like you were talking about too, how that somehow did not get caught up in the Silver Institute's numbers. It really certainly didn't seem to be a whole other story. All right. So David, then, here's your last question. And I think this is probably one that's right in your wheelhouse. Right now, with the premiums on American Silver Eagles are just through the roof, right? Is there anything wrong with just simply stacking generic bars and generic rounds?

David: There is not. I mean, as you know, Craig, I wrote the "Ten Rules of Silver Investing" for the investing rules book probably 20 years ago, and I said, you know...I'd said to dollar-cost-average, I said, don't over-invest in silver, and I also said silver is silver. When it comes to the end of the day, and there's enough silver being sold back, the premiums drop. So an agent that you're going to sell to, not on eBay, or whatever, or you might be able to mark it up because it's a Silver Eagle. But at the end of the day, an ounce of silver is an ounce of silver. Whether it's stamped by or struck by the U.S. Mint or it's struck by somebody down in Florida who runs a minting facility, it's still an ounce. So yeah, I would definitely go to... In fact, there's a way, especially if you have an IRA, that you could get that $14 premium and maybe move it into, let's say, silver bars, and you can get a lot more silver into your account.

Craig: That's a good point. That's a very good point. And that leads us back to the very beginning, David. Again, if you are a stacker, or interested in stacking maybe for the first time, Sprott Money, the provider of all of these great podcasts should be your go-to choice. Anytime you're in the market, you can go to the website, sprottmoney.com. Again, the special this month for Canadian customers is that First Majestic one-kilo silver bar, it's pretty cool. But there's all kinds of stuff for everybody on there, too. And of course, if you'd rather talk to an actual human being, you can just pick up the phone and give them a call at 888-861-0775.

We've been talking with my old friend David Morgan, who is the publisher of "The Morgan Report." Really indispensable information for anyone interested in the precious metals and the mining shares. You can find more information at themorganreport.com. David, thank you so much for your time.

David: Well, Craig, it's always fun being with you. Thank you.

Craig: And from all of us here at Sprott Money News and sprottmoney.com. Thank you for listening. And we'll have another "Ask the Expert" segment next month.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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