Jobs Report Has Major Implications for Precious Metals - Weekly Wrap Up

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Craig: Well, happy Friday from Sprott Money News and sprottmoney.com. It's Friday, May the 7th, 2021. Another jobs report Friday that really went in our favor this time for once and has major implications for price in the weeks ahead. I'm your host, Craig Hemke. And joining us this week is silver expert renowned silver expert and good friend David Morgan. He's the publisher of "The Morgan Report." Found conveniently at themorganreport.com. David, thanks for joining me.

David: Okay. That's great to be back with you. Thanks for having me on the show.

Craig: Hey, before we get started, of course, please always remember that all of these "Weekly Wrap-up" podcasts, the "Ask The Expert" segment, that new monthly feature with technical analyst crews for Mulan, all brought to you by sprottmoney.com. Whatever platform you listen to us, make sure you give us a like maybe subscribe to help us get the word out because this is a very important time to educate yourself on precious metals and sound money.

And before I get to David, just a few comments today, I'm sure David will have some too. But on this job's report, massive miss by all the seven-figure economists that said we are going to have a seven-figure jobs print. Said it came in at 255,000 but 50 of those came out of the .gov. And so we're talking just barely even 200,000 private-sector jobs. Very important for the fed. Chairman Powell has said they are going to be watching the net labor market very closely. If they're even to start talking about a taper or eventually raising the fed funds rate in 2023.

Also though Powell said, "Watch that average hourly earning component." And boy was that a big number of day up. Seven-tenths of 1%. So we're very likely now into a double barrel inflation that is not transitory and that you've got input costs going up. Witness with everything that's going on with commodities, that's inflationary but then are you also getting demand-pull inflation, which is higher wages, too many dollars chasing too few goods. There's nothing transitory about this. Very bullish for the precious metals going forward though not necessarily reflected today.

David, I want to get your thoughts. I know we're a little frustrated that even with the dollar down more than half a point today, silver just keeps getting sold backward. However, on the week, even when you include today, we're still up about 6%. I'd take that every week. I would imagine you would too.

David: Exactly, Craig. I mean, if you look at gold, I know we're talking silver but gold is on a 12 week high or above 1800, I think, you know, the market hasn't closed with doing this Friday morning but I think will. So that's very bullish. And then silver, as you said, you know, up 6%. So I think both the metals are pretty close to breaking out here. I don't want to get too excited. There are so many times we've seen a fake-out and not a breakout. The COT is not super favorable to further highs but I think it's favorable enough. We could certainly see it.

So I'm still very bullish to metals longer term and on a short-term basis, they are looking better. They're building strength. They're getting more momentum and it looks like some of these price barriers are taken out with more to come.

Craig: David, you've devoted almost your entire adult life to silver. I've got to ask you about how copper fits into the picture because we're sitting here this morning, copper is at all-time highs and just screaming higher with everything else. You know, iron, ore, lumber, all of the base metals, the grains, alive hogs, cotton, sugar, you name it. But copper here is up to about 4.70 new all-time highs, exceeding its levels from 2011. Do you see that as something that precedes a silver rally? Because again, copper took off in 2010 before silver did. What do you make of this and how do you reconcile this kind of disparate view of, you know, where each of those metals are?

David: Well, perfectly honestly, Craig, I'm slightly confused. Number one, yes. There is a correlation like you just said in 2010 to silver going very high in 2011. So it could look as a pre-stage to what's going to happen to silver markets. So I think that's all valid. What I have a little bit of a struggle with, I say a little bit is that copper's demand is predicated I think more on the future of electronic vehicles and, you know, further build-out in, you know, the global economy that actually exists. Don't want to be a negative Nellie but I analyze these things as you said and have, you know, for a very long time.

So there's an anticipation factor built into the copper price I think that might not have existed the last time we saw it do it in 2010. That's my take now. But as we all know, I've said the market knows more than me and the market's saying higher highs for copper, which is a huge indicator that we are going to see a much bigger demand for copper across the board infrastructure, electronics, electric vehicles, and on and on.

Craig: How about this, if copper just maintains up here between 4.50 and 5. I don't want to make it sound like it's a fait accompli but is it your experience to think that eventually silver almost has to catch up?

David: Well, there's different dynamics. I mean, copper's almost purely an industrial metal. I mean, there's really no monetary use to it at this point in time. There used to be. Silver obviously is industrial as well as monetary. And yeah, I think so. I mean, a lot of things driving the copper market has to be on the industrial side and you flip that over into the industrial side of silver. So even on an ice engine and the internal combustion engine, the average car is using far more silver and it's not electric vehicle because of all the do-hickey get the gadgets that are inside the car with your GPS and you know, your stereos and your flat-screen TV for the backseat, for the kids and everything else that goes into a modern automobile.

So you could just project that out into the solar industry that's, you know, been more violen...revitalized further due to the green energy push and everything else. So you have to think there's a high demand in copper for what's going on industrially. You know, you can take that into the silver market and probably factor it by, you know, 20%, 30% greater because the silver is the most useful metal on electronic basis conducting heat basis than any other metal. And there aren't many substitutes. If I might digress just for a minute, you didn't ask if I should.

Craig: Sure.

David: But one of my members has been with me for a little while and he asked, you know, "Isn't silver for a self-defeating situation because as the price goes higher and higher and higher, there'll be more substitution and that will kind of defeat its purpose of being high priced?" And I wrote him back the answer and the answer is no. Silver's price inelastic on the demand side that almost all applications. What does that mean, David? I've said it before but let's say it again. A refrigerator, an automobile, a cell phone, a flat-screen TV, a membrane switch, and about 10,000 other applications for silver. The silver in the application is such a small percentage of the overall cost it's price inelastic.

So for quick example, a membrane switch on a let's say microwave oven, the amount of silver in that might be I'll just make up a number 20 cents on an item that costs 200 bucks. So if silver goes up 10 fold, it's only 2 bucks on a $200 item and that's the silver situation. Plus there's no substitution that works other than gold platinum or palladium, which all costs a lot more in dollar terms. So if you're going to substitute it with copper or aluminum or some other metal, it's not going to have the reliability that silver gives you.

So in almost all cases, I'm not talking silverware and I'm not talking silver jewelry, I'm talking most industrial applications, especially on the electronic side, silver is it. I-T it. There's nothing that's more essential needed and it can't be substituted. Just to take a deep breath and let it out, there is a place and there could be more because look, technology continues to march forward. Graphene may take over some of the electronics functions of silver in the future but right now it's not economic to do so. But I won't leave that out for the graphene lovers out there. I want to be honest but really Craig, that's a very, very important fact to know about silver as far as the inelastic ability for silver, no matter what the price is, there's nothing cheaper or nothing better. It can't be substituted, at least in today's technology.

Craig: Still needed for those do-hickeys as you call them.

David: Right.

Craig: Anyway, I want to get back though to this supply issue, David. Because if anybody knows this stuff, it's you. There are people who describe themselves and purport to be analysts out there. They just work for companies that kind of tout a bottom line seem to lobby almost for their customers' interests. You know, you might want to check out some of these people, their relationship with organizations like what used to be The Silver Users Association and now is The Precious Metals Users Association. You would think if you're a user like you said, you'd like to have a lower price. And so there are some analysts out there that like to talk price down all the time.

And one of the stats that's been tried out recently is that the world is a wash in silver. There's silver everywhere. Three billion ounces, maybe even 4 billion ounces. David, what's the deal with this? I mean, is that just false? Are they counting Grandma's silverware and candlesticks? How much silver do you think is out there?

David: Well, it's a great question, Craig. I'm going to digress and I will answer the question. First of all, I think it was the first time or second, I was only at the Silver Institute Conference early in my career or my public career many, many years ago. And Mitsubishi did a presentation and at the end of his presentation on silver, he made the statement that there was and I forget the number but I'll be pretty accurate. Like there's, you know, 30 million ounces of silver available. And I just about choked on my coffee. "What is this guy talking about?"

And I challenged him, not, you know, on the floor, not as a speaker in which more, you know, too polite for that but you know, one-on-one sort of thing. In fact, the director of the Silver Institute was with me when I said, "What are you talking about? You're talking about every molecule of silver that exists. I mean the amount of investment-grade silver isn't anything close to that." And he shrugged me off and basically said, "Oh yeah." He basically indicated that all that silver is available, which is absolute nonsense. So going further and coming more into modern times, I mean this Jeff Curry from the Goldman Sachs commodity desk, I think he's their chief trader. I forget his exact title. Said that there's like 25 million ounces of silver. Well, this is not...

Craig: Billion.

David: Or billion, I'm sorry. Billion. Thank you. And this is again, counting every molecule that ever existed above ground. So what we really talk about in the silver market is what I call the honest to God silver market, which means how many 1000 ounce commercial bars are there? Now, if you want to go investment-grade silver, I'm going to answer the question. We'll come back to what is considered investment grade by yours truly. And I think most people listening will agree.

So it becomes any silver coin minted by a government, any silver coin minted by a private mint known as a silver medallion or a silver round. Any 1-ounce wafer or a bar, 10-ounce wafer or bar, 100-ounce wafer or a bar, or kilo silver bar. So all of that is investment grade but it's not commercial bar form, but it's investment-grade silver. There's no doubt about it because all the silver stackers out there certainly there's a huge market for it, buy and sell both sides, et cetera. How big is that market? No one knows but it's probably well over a billion ounces at this time just in the coin side. Meaning all government minted and privately minted, 1-ounce rounds and silver ounce coins. So that's part of the market.

How many 100-ounce bars and 10-ounce bars? We really don't know but we're probably in maybe half a billion there. So 500 million. On the commercial bar side for investment purposes, we're sitting at roughly a billion ounces. So you've got a billion ounces there that we can prove. So you've got a billion ounces there, maybe a billion and a half in the coined or retail side. So that's two and a half billion. That's pretty much in investment form but if you want to be technically correct, you've got to look at how much there is in just the 1000-ounce of commercial bar form.

And that if you take what we know for a fact of 1 billion, you could double it and say 2 billion. You could add the 1.5 billion in retail investment forms and come up with a three and a half billion. So I don't think, you know, the number of 3 or 4 billion is really out of the question. I mean, you can move it up. There is some out there that we don't know about. You know, from borough mining, I call it, which is, you know, small miners across the planet that are eking out maybe a fair to good, to maybe great living based on this small mining activity that never really hits the books. We don't really know how much is there. It's not huge but it exists.

So I think that's hopefully a good summary of how much honest to God silver there is. With the Silver Institute study, I've gotten the CPM group study every year for years and years. I used to get Handy & Harmon. There used to be other entities that put out information metals focus. So I look at everything that's available out there and try to come to a reasonable conclusion based on published numbers. It's not hard to determine the mining activity, Craig because most of your major minors are published.

I mean, these are public companies. So you know how much Pan-American are mining, how much First Majestic are mining. You know how much contributed by RTC or Rio Tinto, you know, how much from Broken Hill Properties. You know from some of the huge conglomerates where silver's around in the air for their overall, you know, price-performance or their overall net sales. Still as a huge amount of silver relative to what comes out from a primary producer because these are such huge conglomerates that mine so much iron, ore, copper, you know, and other minerals. That, again, silver is a small portion but it's significant in the world of silver. So I hope I covered that sufficiently for you.

Craig: Well, let me put it this way. You added all the numbers up and that's fine. I think it's disingenuous on the part of these other analysts though. To make it sound as if grandma's candlesticks and the Eagles that I have in my desk drawer are available for sale at $27 because they're not. And so to account, you know, the silver that's already been cranked out as retail investment demand, or as candlesticks, as part of the global available supply at $27, I think is disingenuous. I mean, I think you nailed it. I mean, there's the 1000 ounce bar supply. There's the mine supply every year but don't you think it's a bit of a reach?

David: Well, I'll compliment you for making that statement because, you know, I was a bit remiss in not making the point and I'm glad you did. Let me add to it because you know, it's like any market, you know, any stock in the stock market or the commodities market really isn't so much what's the availability? It's what's the float? It's what's available at what price?

Craig: Exactly.

David: And right now what's the availability for anything on the retail side and for all practical purposes it's zero. And let me yell it, it's zero. Why? Because anything that's been purchased the last six months with the silver price somewhere around the $26, $27 level's been purchased for $37. So there's no way in less its dire straits, which will be the exception that anyone in their right mind is going to take their silver down for 27 bucks in cash out at a $10 loss. It's not going to happen. Will it happen to some cases?

Yeah. In dire straits, it might but for all practical purposes, all of that silver is very tightly held and doesn't have a shot in the dark coming back until you get to at least break even, which on a percentage basis is, you know, 20%, 25% higher than it is right now.

Craig: Precisely.

David: And then if you move it over into the silver market, the commercial bar market, even those bars have premiums on them now. You know, not too many people talk about it. And I've never really seen that in my career. I mean, there's been a couple of times where it's been, oh no, kind of a onesy, twosy things. And it took place for, you know, a week to maybe a month but not like it's been lately. Where, you know, if you take it off the exchange, you don't just change the warehouse receipt and put somebody else's name on it where it still sits on the same shelf. If you actually take it off the exchange, it's like a buck to a buck 25 over on a commercial bar. So there's a lot. You know, this is a motion I'm allowed to have it but something isn't right in the silver market, let me tell you.

Craig: Well, and again, you did a wonderful job of explaining where that number comes from. I just think that these alleged analysts out there who have a clear conflict of interest in tamping down the price just need to be clear, you know, where they're coming up with these numbers and how, like I said, it's just disingenuous to lump it all together and make it sound like, "Oh yeah. There's just all this silver just laying around waiting to be used." But anyway, I digress too. David, we've already been at this for 20 minutes. So let me just quickly move to wrap up.

I did want to ask you though because we so often in the past when Eric's been around talked about silver miners. And I know that's part of what you do with "The Morgan Report." The SILJ, the SILJ, the ETF of silver miners has been performing far better than the gold miners so far this year. We've seen great reports, great drill results, and great earnings reports from the silver miners. Got some silver miners that are now withholding production because they think the price is too low at this time. They're going to sell it later. What do you think of the silver miners? I don't know if there's any individual names you want to share that you like, and then we'll go to wrap up.

David: Well, I, you know, have an absolute huge appetite for silver in general. And, of course, "The Morgan Report" covers all the resources but right now the market's telling us, you know, to focus on uranium, focus on the primary precious metals, and a little else, really. So it's primarily asymmetric trader to in the speculative section. But Wheaton Precious Metals used to be silver. Wheaton is obviously a good one. I like royalty companies for a variety of reasons. They're a well-leveraged, well-run company. I think there's a lot of upside in any of these silver companies. And at the end, when this market gets really hot, anything with silver in his name that claims to be looking for a silver project is going to fly but that's at the end of the cycle and we're not there yet.

Generally, the whole sector is very undervalued. So if you're a value investor, it's a good time. If you have some patients. And lastly, I think that you get leverage in the silver market through the minors that you can't get in the general market. Now, let me be consistent. I've always said you should have physical silver before you ever buy "The Morgan Report." And I still emphasize that. But if you want to buy silver for 5 cents an ounce, you can do it through the mining industry. You cannot do that in the retail or even the wholesale silver market.

If you want to see leverage, like if you go back to First Majestic, I forget the exact numbers. I'll outline it but it was 2016. I remember the year, Craig, and I think the price got under our initial buy of around 4 bucks but it might've been 6. I can't remember, but it went from like 6 to 26. But silver has gone up but nothing like, you know, 400% increase like the stock did. So that gives you an idea of how much leverage you could get in the minors that you don't get in the metal itself. Now, you can get the kind of leverage. And I caution everybody to just absolutely stay away unless you're a professional that would be in options or futures.

But you get the same type of leverage in the minors if you know what you're doing, especially if you can time it without the leverage. In other words, that outline of like 400%, I think it was a little more than that in 2016. Trading First Majestic, that was with a fully paid no margin account. Right. So your risk was not nearly as great as it would have been let's say in the futures or options markets.

Craig: And like you said, great leverage to the upside. And they certainly look to be performing pretty well. David, I value your friendship. I value your analysis and your insights. And I'd encourage everybody to check out "The Morgan Report." If you're interested in silver, again, just themorganreport.com.

David: That's it. Thank you.

Craig: Please be sure to check it out. Oh, and hey, one more thing before we go. For our West Coast listeners, I'm talking to you, David Morgan, but anybody in California, Oregon, Washington, BC, Alaska, we've got some Alaska stackers. Hey, Sprott Money has extended our call and order desk hours to 6:00 Pacific time, Monday to Friday, just for all of you out there on the West Coast. So again, you can call us anytime you want. At (888) 861-0775 to place an order by phone but hey, if we're not around, it's on the weekend maybe, sprottmoney.com for some of the best prices you're going to find on physical gold, silver, and platinum. And we'll also offer you a place to store it if you need that too. David Morgan of "The Morgan Report," thank you so much for your time, my friend. I hope you have a great weekend.

David: Well, thank you, Craig. Same to you.

Craig: And from all of us here at Sprott Money News and sprottmoney.com, we hope you have a great weekend as well. Talk to you again next week.