GameStop Action Spills Over Into Precious Metal Sector - Weekly Wrap Up

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Craig: Welcome back to the Sprott Money News and sprottmoney.com "Weekly Wrap-Up,". It's Friday, January the 29th, 2021. I'm your host, Craig Hemke, and sitting in for Eric Sprott this week is David Morgan. David, a renowned silver expert, who's basically devoted his whole adult life to following silver and silver investing. What a great time to have David join us, with everything that's going on in the silver market. David, thank you so much for joining us.

David: Well, Craig, thanks for inviting me, and quite a historic day, at least it seems to be.

Craig: Sure is a lot of fun, my friend. And we'll be talking about that, obviously, as we go through this podcast. Just a reminder, of course, these "Weekly Wrap-Up" podcasts are brought to you by the good folks at Sprott Money. It's a name you can trust. Although inventory is still a little tight for everyone, be sure to check out the recently added products at sprottmoney.com, or just simply give us a call. You can order from us directly, too, and talk to a live human being at 888-861-0775.

And I'll add one more thing. I recorded a couple of days ago the Sprott "Ask The Experts" segment. You can also find that at sprottmoney.com, in the "Insights" section. This month's guest was renowned analyst Luke Gromen. And I can tell you from having recorded that myself, it's a great podcast. And I would strongly encourage everyone who's a "Weekly Wrap-Up" regular listener to check it out. Again, they can find that too at sprottmoney.com.

David, of course, our guest here, his newsletter, his subscription site, is "The Morgan Report," if I remember the name right. You may have changed it, David. I can't recall. Tell everybody about what you do for a living.

David: Well, I'm a financial newsletter writer, and it is themorganreport.com. And there's a free letter, which I encourage everybody to sign up for, and then there is a paid service as well.

Craig: Perfect. And again, the website, David?

David: themorganreport.com.

Craig: Well, that couldn't be easier. Again, David has been at this a lot longer than I have, and has forgotten more about the precious metals, and silver specifically, than I'll probably ever know, so it's great to hear from him, especially at this time. David, I'm sure the action this week has caught your attention. Everything that was going on in some of these small, heavily shorted equities like GameStop has begun to spill over in the precious metals sector, as word gets around that the banks have long dominated this sector and manipulated price. And so if we're gonna kind of give them a little payback, here's one way to do it. And we're watching price rally again today. What are your thoughts on all of this?

David: Well, it's really interesting to see that, you know, some group or whatever, individual investors, really, are taking on the Wall Street elites. I mean, I forget the gentleman's name, maybe you can help me out, Craig, but I was interviewed on one of the main financial channels, and it was an interview about, you know, this is...the interview was kind of implying this is wrong, and this black man stood up and said, "The heck with that."

They had 140% short, which let me just interject here, how can you short more than shares outstanding? You can because of the options market. So, you can leverage the heck out of it by being short options, and that could be twice the float. So anyway, there's that, and he said, "No, this is like," my words not his, "payback." What's good for the goose is good for the gander is what came to mind immediately for me. And it's something of course, we've struggled with in the precious metals, basically, forever.

I mean, you can read Sutton's book, "The War on Gold," and there's so many out there. And, of course, even when it's admitted, put in writing, that they've manipulated the market, nothing really changes. So, you know the same drill, but yet, I've always said, and I haven't backed off it, although the market's sort of made me reconsider, I've said, you cannot manipulate the long-term trend, but within that trend, you can certainly manage the market.

Now, I might change my words if I think about it longer, but in a fiat system, where you go off the gold standard in 1971, and you get to the place we are now, where we're absolutely having a currency destruction across the world, and we're at that tipping point where no one's going to trust the USD anymore, when you hit that place, and where I think we're hitting it now, or close to, then what do you do?

And in past, it's a run to gold. And a run to gold really is a run to silver this time, for a couple reasons. Silver is less plentiful than gold on an investment basis, and it's really, the old adage that "he who owns the gold makes the rules." Not anymore. He who owns the silver makes the rules, and here's why. Everything we depend on in this modern technology society is based on silver, and without it, nothing happens. It's almost as important to our lives as air and oil. Oil is probably more important right now in our society globally than silver, but silver is a very close second.

Craig: And yet these, let's call them bullion banks, or other nefarious parties, there's only about 5 or 10 of them it seems that really control the price from the short end. And they are able to manage it for their own profit, at the expense of the producers, the mining companies that could open more mines, that could pay their employees in Central America more money if they got more at a fair price for their product.

And so, it's wonderful to see a building, let's call it anger, toward this pricing scheme. I don't know, David, I know that the grassroots level can kind of spark some momentum. My concern is how many folks would actually, you know, go to a TD Ameritrade, open a futures account, fund it, sign all the paperwork, put up the margin, all just to buy, you know, five silver futures contracts.

I'm not sure if at the grassroots level that can be accomplished, but do you think by just drawing attention to the sector, continually bidding up things like SLV and PSLV, that maybe we could get price high enough that you can kind of get into this virtuous cycle, you know, of begin some short-covering and then get higher prices again, and then all of a sudden, we're in the 30s, and then all of a sudden, the traditional managed money accounts start to buy COMEX futures. Could you see that unfolding in the weeks ahead?

David: Yes. And I've actually believed that, you know, in my lifetime, and I'm getting older by the day, I would see that. So, it's basically, the physical market will take them on. The thing that's so beautiful about silver is you don't need a brokerage account. You don't need to sign any forms, you don't need anything. You need a phone or a computer, and you can buy physical silver right over the internet or with a phone call, and you're done. So there's not any of this financial, you know, third-party stuff. You don't need a broker. You just need to make a connection, and buy it.

The other thing is that there doesn't really need to be that much physical buying to really tip the scales. I did a video years ago, "Myths in the Silver Market," that talked about the myth that everybody should own a little. And that's what your average dealer will tell you, you know, and I believe that. I mean, everyone should have some protection for what's coming in the currency markets. And that means precious metals. At least, that, maybe cryptos as well, or one or the other. I'll be open-minded about it.

But to do that, I said, all right, let's just take "everyone owns a little." How much is "a little?" Well, I'd say one or two ounces is a little. I mean, you know, at $20...we'll call it 27 bucks today as we're doing the interview, you know, we're talking 34, 35 bucks, for 2 ounces. That I don't think is gonna change anybody's life, and I'd certainly consider that a little. But if everybody in the United States bought 2 ounces, that would wipe out the annual silver production, global. And that's a little, but everybody should own a little. Well, the United States represents about 4% or 5% of the world's population. So you'd have to take that number and multiply it by 20 to get to everybody on the planet owning a little.

So I think you get my point. Not everybody can own a little. It's too scarce. It's precious for a reason. You look at it another way. You could say, what if everybody had 1000 ounces in silver? Now, 1000 ounces, as you know, this is a little bit sophisticated, but it's pretty simple to understand. A dollar is 371.25 grains of 999 fine silver. It's a weight. It's a weight of silver. That's the actual legal definition.

My point is, if you bought old silver, meaning what's called "junk silver" in the trade, or 1964 or older, 90% silver coins, and you bought $1,000 face value, that is 720 ounces of silver. Now, do the arithmetic on that. How many people in the U.S. could just have $1,000 face value? And that will cost you $20,000 in fiat, which gives you a slight idea of how much degradation or depreciation of the currency there's been.

Because at one time, you could take a piece of paper that said silver certificate on it, and you could trade it for four 90% silver quarters. Those days are long gone. They ended in 1965. But it doesn't take a lot of buying, but physicals is a key. But I would suggest, for the GameStopper types out there, and this is just me talking off the top of my head, that I do think that there's always been more money made in paper silver than in physical, for the most part. I mean, there's exceptions, but generally speaking, the right mining stock, the right futures timing, the right option at the right time. I mean, I do not advocate anybody in the leveraged position, especially in the metals. But the truth is, if you time it right, you can do exceptionally well. The miners are safer, but still higher risk.

The point is, if you take one that I know we're going to talk about in a moment, you could, like, double your money in the right, let's say, silver equity. You could take that money, I've done this all my life, and take those winnings that maybe you tripled in a stock, and silver's only gone up 20% for the year, you could take those winnings if you wish, and put them into physical. So I've done that, as I just said, most of my life. I've taken a lot of that profit and put into physical metal.

Craig: Well, and that would be the thing to do here. If anyone is new to the sector, the key to understanding the pricing scheme is that it's a highly leveraged fractional-reserve pricing scheme. There are far more physical, I'm sorry, there are far more derivatives and unallocated accounts and promissory notes for every ounce than you'll probably find even in the gold market.

If you're gonna force a deleveraging of that scheme, it'll be through physical purchases. And so, yeah, David, what if the folks at Reddit took some of their profits from GameStop and others, and even if they just bought one tube of Eagles from Sprott Money or some other online dealer, we might really start getting somewhere.

David: Exactly. Well, the gold market represents about 1% of the financial assets of the world, and the silver market represents 0.02%, so you do the math. I mean, it doesn't take a lot of new buyers, especially as you said... I haven't done the arithmetic, but if, I don't know, take 10% of the U.S. population bought one roll, which is 20 ounces, what would that do to the silver supply?

The thing that also about, just, you know, ordering over the internet or ordering over the phone, is that you can lock in your price today, and then, you know, by the time you get your metal, if things continue, and I say if they continue, you could be buying it, you know, $27.5 as we're doing the interview, and by the time you get your actual metal three weeks out, it's gonna be $37.5. Now, I'm not predicting that. What I'm trying to say is, the more there's a demand... And it's already tight, it was tight before this happened. I know almost every major dealer on a first-name basis, as you well know, Craig. And unsolicited, I had a few of them call me and say, "David, did you know?" And sometimes I don't. I knew when it was tight from, like, March on, for many months last year, and I knew it was getting tighter, but I didn't know it was as tight as it is. I think there's about a four-week wait on most products right now. That's before these young people that have really thought this through. And I love the idea that the free market could take control. I mean, it's been kind of my life's dream.

Craig: You bet.

David: It's the way markets should work. It's so... Going back to the start, I mean, to whine and whine and complain when these guys control the markets and manipulate the heck out of them, every day, all day long, to their benefit, and see the public come in and say, "Hey, we can do the same thing." And that's wrong? And they're right? So they have to manipulate the public even further.

In fact, I had a text this morning about, you know, well, look what they're doing to these people that have, you know, GameStop. They have to sell only, or they can't get to their account anymore, and I typed in, "How rare." How rare. It's gone on for so long.

Craig: Right. David, remember when the JP Morgan proprietary trading desk went over a year without a single day, one single day, of posting a loss? I mean, for crying out loud.

David: Yeah. Well, [crosstalk 00:13:48] possible, but, you know, when you...

Craig: Well, it's not possible without, you know, rigging the game in your favor. And one more thing. You know, but you talk about silver being tight. Just even on a most optimistic, if you will, supply, above-ground stock level. Remember that the line was always, "There's only a billion ounces available?"

David: Yeah.

Craig: And at $27, that's $27 billion could buy the, all of it, and force that deleveraging? What's the current market cap of GameStop now? You know?

David: I don't know, but yeah, you're right. [crosstalk 00:14:26]

Craig: That's how easily this could happen, if the people that are making this initial stage happen remain persistent, and patient. And let's hope they do. David, in our remaining time, you'd mentioned the miners. Let's talk about that, because I know that's all part of what you do, too.

This is certainly something where retail traders could enforce their will on these predatory short sellers. I know Eric has been a big proponent of the Save Canadian Mining Initiative, to try to eliminate this predatory, really what it is, short selling on the mining companies, where there's no uptick rule, there's no rules against naked shorting, and it's just brutal what it's done to the industry. And now there are some stocks that have massive short positions, like First Majestic Silver. And I know there's a little bit of a movement afloat to try to rescue them and bid them up. What do you think of that idea, and how maybe retail can have some impact there?

David: Well, they definitely had some impact yesterday. I looked at it, and I did it in my update for my paid membership. First Majestic's been on our list for a very long time. In fact, it was on at I think $4, and I think, it went a year or so, and it was just under that, and I of course, wasn't going to take it off the list, and then it zapped up to, like, $24. So there's your, you know, 6-fold increase on a miner, and that would be the equivalent of silver, I don't know what it was at the time, Craig, but I'm gonna say it was 10 bucks, it'd be like silver going to 60 bucks, which, we haven't ever seen that price. So, the miners absolutely outperform.

So anyway, yesterday, the volume was huge, and the stock, you know, just rocketed up. I forget the end price. I don't have the chart in front of me, but it was significant. And that's just, you know, one stock. Was heavily shorted. And these GameStop folks, you know, they could think. And it put a big smile on my face.

And I own the stock, so let me disclose that, but I think there's fun ahead. It's just, in the commodities market, but especially in the money metals, there's so many ways to participate in the market, and that means there's all kinds of paper derivatives, and that's supply. So, you have an infinite supply of, you know, paper silver or paper gold, but you can't make that piece of paper into real metal. As much alchemy as you'd like to think there is in the financial markets, they can't do that.

And that's why it's critical to get real price discovery, is to make the market so tight that basically, you could blow up the futures market. I'm not predicting that, but if that were to happen, you go to a cash market, which means no funny business. This much [inaudible 00:17:11] for this much cash, or this much silver for this many homes, or this much silver for, you know, a Tesla, or whatever. And that would be a free market enterprise, where price discovery was made without external conditions forcing the price down based on an infinite supply of paper.

Craig: And when that finally happens, that price is not going to be $27.22 per ounce.

David: No, sir, it will not. As I said earlier, it's probably the most key element known to man in a modern society. Without silver, nothing happens.

Craig: Yeah. You think of all of the solar panels, all the batteries, all the electric, everything that silver is used for, and you've got this initiative coming from the new Biden administration, right? Green New Deal kind of things. You've got what appears to be a general commodity bull market that's getting underway, after years of downtrend. Boy, it all kind of stacks up, regardless of how aggressively our new friends at Reddit get involved.

David: Exactly.

Craig: David again, The Morgan Report, correct?

David: Correct, The Morgan Report.

Craig: themorganreport.com. If you're interested in silver, it's just one of the absolutely best sources of information you're gonna find. And if you like these "Weekly Wrap-Up" and "Ask the Expert" podcasts, please be sure to like, subscribe, and even share this information on whichever channel you're listening to. We'd very much appreciate it, and it will help us spread the word. David Morgan of The Morgan Report. David, thank you so much for your time on a busy Friday, and hopefully, we can speak again soon.

David: Thank you so much. Appreciate it.

Craig: And from all of us at Sprott Money News at sprottmoney.com, thank you for listening. Have a great weekend.