Monthly Wrap-Up With Host Craig Hemke and Special Guest David Morgan
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In this episode of Monthly Wrap-Up, host Craig Hemke and guest David Morgan discuss silver and its recent performance during the summer months. David Morgan shares insights into the Commitment of Traders reports, the potential for a short squeeze in the silver market, and the impact of industrial demand on silver's supply. They also touch upon the undervaluation of silver mining stocks relative to the price of silver and the potential catalysts for a significant move in the precious metals market, as well as the overall economic and monetary landscape. Hemke and Morgan provide a multifaceted perspective for those interested in precious metals investing and market dynamics.
Watch the full video below.
Announcer: You're listening to Sprott Money's Monthly Wrap-Up, with Craig Hemke.
Craig: Well, greetings everyone, from Sprott Money and sprottmoney.com. It is the end of August. Holy cow. Two-thirds of the way through the year 2023, and it is time to wrap the month up. I'm your host, Craig Hemke, and joining us to help in that process is our old friend David Morgan. David, nice to see you, my friend.
David: Well, Craig, it's good to see you.
Craig: Everybody should know who you are. You've dedicated your whole life to the precious metals, and to silver. If they don't, they can, of course, find you at themorganreport.com, but they can also find you on Twitter, can't they?
David: Yeah. I'm @silverguru22, and I've got about 93,000 followers, so if you could push it up to 100,000, make my week, month, and year.
Craig: That's the least I could do, right? So, everybody, hey, smash the like button or the subscribe button on whatever channel you're watching this video, or listening to this audio. But then also, yeah, for crying out loud, follow David on Twitter. Let's get him to six figures. I think that would be fantastic.
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All right, David. This has been an interesting month. August always brings with it what I call the summer doldrums, or the dog days, you know, all the American traders are trying to squeeze in one last vacation before school starts. The European traders notoriously take the month off and head down to the Côte d'Azur or any of the places that they go. They're all gonna be back, all hands on deck, beginning early September. And so, the month has been kind of run by algorithm, almost. The dollar index goes up, the metals go down. Dollar index goes back down, the metals go up. And the last couple weeks, they've been going up. What are your thoughts as we move through this month?
David: Well, just to reiterate a bit, Craig, August is almost always a low for gold. And the algorithms of course have run things for a very long time. I mean, I was at the pits years ago, and I watched the, how they really film it. In those days, I witnessed the fact that one of the CNBC hosts really pushed everybody into the corner in the bond pit, so that the camera angle made it look like it was really frothy. So, you know, even back in those days, it was mostly what we call off-floor trading. It was all, you know, people behind the computer somewhere.
But I digress, so come back. What I think's the most interesting this month is that we've seen a very big shift in the Commitment of Traders reports. And I don't hang my hat on the Commitment of Traders exclusively, but certainly it is something to pay attention to. And now, with the commercials being more or less net long, or close to it, that indicates that there's a setup here for a potential short squeeze. I've looked at it. I don't look at it daily, Craig, anymore. But what I've looked at on more or less a weekly basis is that I think it's mostly short covering right now. I don't see a lot of new buying. If you look at the wholesalers, which I have a direct line to, not all of them, but a lot of them, they're loaded with metal right now. You know, and you know, from Sprott Money, that the premiums have come down, and all that. Doesn't mean to give up on the silver market or anything close to it. We would expect this in August. But I do think there's a lot that's gonna happen between now and the end of the year, because we've seen such a drain-off in the physical supply of the COMEX, the LBMA, and what's going on with the SLV. The SLV is losing metal as well. And the short position, there isn't enough stock left for anybody to short the SLV. So, there's a lot behind the scenes, as I've said ad infinitum, that people don't see, but people like you and I, that have been in this market for so long, we can see it, or at least get a glimpse of it. And we can also feel it, because it feels to me like there's that little rumble that happens before the big eruption.
Craig: Well, let's talk about that, then, because we are now heading into the back third of the year, amazingly. The first two-thirds have been dominated by, "Oh, look how strong the economy remains," and the Fed talking about higher for longer. You know, and I still crack up, Dave. I mean, it was March the 7th, and Powell was on Capitol Hill talking about how great everything was. And then just three days later, Silicon Valley Bank broke down. So anything can happen at any time. What would you think would be a catalyst that could get things really moving in our favor, get some of that long buying to happen as we get in the back part of the year?
David: Well, I think there's an ongoing catalyst. And then there's, let's say, so, there's a chronic condition and let's say an acute condition. I think most people are familiar with those words. So, the chronic condition is that the silver supply is continually being eaten away by industry. And that's kind of in the background, but it was 35% of the market two decades ago. Now it's 55% of the market today. And two decades ago, the above-ground annual mining supply was about 550 million ounces. And today it's 850 million ounces. So, do the math. We're at a 55% offtake of 850 million ounces today, and two decades ago, 35% of 550 million ounces. So, those are big, big changes over two decades. So, that's just something subtle that goes on and on, and it's like a stock buyback program that never ends.
Secondly, acute. Well, what is it? Well, Jim Puplava from Financial Sense, I don't like to say another name on there, but I'll say it. He wrote an article called "Silver Waiting for a Catalyst." What is the catalyst? Well, it could be the fact that people recognize that we are in a what Jim Dines would call a natural corner. The Hunts tried to corner the silver market, maybe yes, maybe no, but that was banned. Bankers in the past tried to corner the silver market. But this is a financial way to do it. But if you are industry, and it's price-inelastic, and you are building solar panels, or you're Tesla, or you're 3M, or you're Dow Chemical, or you're one of those entities that require silver, you're out of business. And you really don't care what the silver price is. You're gonna buy it at any price.
If that coincides or happens around the same time that we have another financial acute situation, more bank failures, name it, you know, people wake up, let's say, another 1% of the population realizes that silver is a store of value, store of wealth, and has more value than gold from the aspect it's more utilized, then that could be an acute input. A lot of it has to do with greed and fear. Greed is when we get to that $50 mark and one of our compadres, when I called the top in April of 2011, he wrote me and he was in a panic. I mean, he said, "You're losing reputation. You're never gonna be on the internet again. You're gonna be a fool," blah, blah, blah, blah, blah. "It's going to $100. You are wrong."
And I was right. It did peak. I was within a couple days of the peak. I do my own work. Doesn't mean I get it right every time. I fully admit that. The point is a catalyst. I think it'll be monetary demand. That's the variable. And that's what we've seen. We've seen, from silver squeeze, the inventory of registered was, like, 150 million ounces, and now we're bouncing around 30 million. I know that a bunch was moved recently from JPM's eligible category back into the registered. But that's, to me, that's signs of desperation. I mean, especially if it has to come out of the stockpile that's transparent. If it came out of nowhere, which it has in the past, and what I mean by "nowhere?" What I mean is, the registered category went up 10 million ounces, and the eligible didn't change. So we knew it came out of somewhere else. That's not true now. I really think the supply is getting tighter and tighter. And I made that statement at a conference in London years ago. And I don't know if I was the catalyst or not, but what I do know is the market took off thereafter, and it really, really went. That's when we saw that spike high I just described. So, did I have something to do with it? Maybe, maybe not. I don't want to take credit for anything that can't be substantiated, but what I do wanna say is, if one person known to be barely knowledgeable in one market that's as small as the silver market, that could be a catalyst.
Craig: What about the mining shares, David? I know that's part of what you track at The Morgan Report. I saw a thing on Twitter earlier today where somebody just plotted the price of the SILJ, the silver mining ETF, versus silver itself, as, like, a ratio, right? And it's, like, the lowest it has been in years, kind of meaning that the silver miners are about as undervalued versus the price of silvers as they've been as long as you could remember. Is there any hope for them, David?
David: There is. I really think there is. Of course, I'm biased because, as you said, I do...
Craig: Me too.
David: ... [inaudible 00:09:48] silver, cobalt, gold, uranium. You know, we look at all the resource sectors, but right now we're loaded pretty much into precious metals. We have a couple uranium picks and one technology stock, and that's it. But it is at the lowest it's been, that, since, you know, the Barron's Gold Index started, whenever it was. And you get leverage in the stocks. But right now, the just, the delta, the change between the two, is as, I think it was TheHappyHawaiian posted what you just outlined.
Craig: Right. That's [crosstalk 00:10:16]
David: So, it could be a situation, or I think it will be a situation, where once the catalyst, whatever it is, starts, when we start really moving above $30 in a substantive way, we could go parabolic pretty quickly. That's typical of silver. And in those scenarios, people that have owned silver, or are thinking of owning silver, might just say, "Hey, I'm missing the boat, but it's not too late. There's these silver stocks that are only 12 cents."
David: Silver stocks that are below a buck. And I witnessed this in 1980, late '79. Anything with gold or silver in its name shot up. And it could be a couple reasons this time. One is, you phone up your local dealer and you say, "I wanna buy," you know "$10,000 worth of silver," and the coin operator says, "That's fine. The waiting list is eight weeks right now." And you go, "Wait a minute. Eight weeks? Boy, this market's really tight. Oh, check that. I'm not gonna make the order. Cancel it. I'm going into the stock market." In other words, you couldn't get silver over the counter. What's the next best thing? The mining shares.
David: And there's a lot of people that have an E*TRADE, Scottrade, Ameritrade, I try to name them all, because I'm not biased to any of them, but they got their own trading platform, they got $2 grand in it, $20 grand in it, $200,000 in it, $2 million in it. I don't care. The point is, everyone's got access to a mouse, and they can buy XYZ mining. So, I think the run to gold, the run to silver will be so phenomenal this time, because it'll be worldwide, not just in the United States and a few Arabs. It'll be everybody, panicking into the metal. And any form, be it silver, physical, ETFs, private placements, junior miners, mid-tier miners, top-tier miners, you name it. And I wanna digress just one more time, and that is, can you outperform with the stocks? And the answer's yes. My top pick in the top tier, where you put in substantive money, it's my favorite stock, and I have the biggest hold. That stock was $50 when gold was at its peak in September 2011. That stock is now triple the price, $150.
Craig: Mm-hmm. I know which one you're talking about.
David: That is like having gold go from $2,000 to $6,000. So, I'll argue with Mike Maloney, a dear friend, and others, that say, you know, you just want the metal, you don't want stocks, gold itself outperforms the gold stocks. At times, that's a true statement. But I just gave you another true statement. But I've organized The Morgan Report differently than almost every newsletter I ever read up until that time. And what I realized, that the juniors is what gets talked about the most. They're the most exciting, and everybody loves that cocktail party where they bought a 12-cent stock that went to 12 bucks. And that does happen. But it's very rare. Most of them go to zero. So, you've gotta play the percentages. And that's why, when I put speculations on the report, it's money can afford to lose. And we only add if and only if there's been a material change in the company. And if you do that correctly, you can make a lot of money.
There's a gentleman in Toronto, I won't name him. But when my dear friend Keith Barron discovered that huge discovery in Ecuador, the stock shot up like a rocket. And a lot of people bailed because it went up, I forget, 6-fold, 10-fold. But if you did the analytics, you realize that thing still had another 10-bagger to go. And someone as smart as the person I'm talking about bought in heavily, and rode it that extra 10. And didn't try to get the last nickel at the top, either.
David: Just basically worked the middle. And did it in a very short period of time, because when these things go parabolic, you don't have a lot of time. And so that just proves my point, that if there's a material change, there is a huge discovery or whatever, then that is the time to reassess. Now, sometimes they get overvalued [inaudible 00:14:05]. In other words, it goes from 10 cents to a buck and if you do the math, and you see, you know, with that big an asset and the infrastructure and everything has to go in, okay, it's really only worth 50 cents. I wouldn't short it, but I wouldn't touch it either.
Craig: Right. For the industry in general, I'm reminded of the old adage that Eric Sprott taught me, you know, which is, you gotta be comfortable being in a room by yourself at the party. You know, everybody else having fun, you know, their FOMO trades, and Nvidia and all that kind of stuff, and they're out, you know, doing keg stands at the party, and you're just in the room, by yourself. Pretty soon, the party comes to you. And that's an old Eric adage, and I think that time is coming again. In our remaining time here today, David, just some stuff that maybe you think it, maybe you've noticed, that maybe others haven't, as we head into the final part of this year, and let's just leave it with that. What, are there, again, other signs, Fed signs? You think the Fed will start talking about cuts as we get deeper into the year? What else have you noticed as we move into the final third of the year?
David: Well, I'm contrarian in the contrarian group. I really think that Powell's gonna just keep raising interest rates until something breaks further. And I do think that at the end, I believe in the [inaudible 00:15:26] pyramid, that the dollar will go up, and at the same time, gold will be going up. And gold will be going up a greater percentage than the dollar, because let's face it, the debt problem is not just a U.S. problem. It's a world problem. All the debt in the world that's of substance is based to U.S. dollars. So, you can BRICS currency this, or you can exchange between the Ruble and Peso or whatever. And that's fine. Nothing against free markets and the currencies or any other market. The point is, at the end of the day, you've gotta print enough, you know, Zim notes to pay off your dollar debt. And that's why it's not a function of the material wealth of the country or the full faith and credit of the United States. It's a function of who's printing fastest. And the reason the dollar does well in the dollar index against all the other currencies is because as fast as we print, which is astronomically insane, it is less rapid than a lot of other countries. Is that a mindblower? Think about it.
I also think that we're gonna get a pullback in the general equity market in October. I made that call before and I've been wrong, so, caution, folks. I'm telling you what I think. I also think that we could see $30, or more, for silver by the end of the year. And I'm not alone there. Some of the mainstream financial press are saying the same thing. And I've been through one cycle, as you know. It's, you know, my, what's left of my hair, and all of it's gray, but the point is that we see... I've seen, when the mainstream starts giving out hints, like they've been doing, they're usually setting up their, let's say, brethren for a move. And it's interesting because we're not seeing any move of silver into the ETFs. It's coming out. Why is that? That's a very important question.
Craig: Right, right. Right. Interesting, BlackRock taking a position in the Sprott-managed PSLV as well. Institutions can't get a lot of silver out of the SLV, but they can certainly get it out of the PSLV if they need it short-term. Another trend we'll have to keep an eye on, my friend. It is always so valuable to speak with you, David. Your wisdom and accumulated experience that has come the hard way over the years is valuable to all of us. And I just appreciate all you do at The Morgan Report, and the wisdom you share on Twitter. And hopefully we'll be able to do this again before too long.
David: I look forward to it, Craig. Thank you.
Craig: It's always fun, my friend. And from all of us here at Sprott Money News and sprottmoney.com, enjoy the end of summer, and then come back in September for a lot more great content at sprottmoney.com and at whatever channel you like to watch this content. Again, Sprott Money is your choice for precious metal. Give them a call at 888-861-0775. Thanks for watching, everyone. We'll see you again in September.
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