In an exclusive interview, US-economist and precious metals analyst David Morgan answers questions related to fiat currencies vs gold/silver, the claims that JPMorgan Chase is rigging the silver price and his support for Max Keiser’s associated campaign to “Crash JP Morgan, buy silver.“
By Lars Schall
David Morgan has over 20 years of experience as an economist. He is a widely recognized analyst in the precious metals industry and consults for hedge funds, high net worth investors, mining companies, depositories and bullion dealers. He started investing in the stock market well before turning 18 years of age. He then spent 4 1/2 years earning a degree in Engineering. Upon graduation he became an aircraft worker at Edwards Air Force Base – and then, once discharged, went to work as a private financial consultant after earning a masters degree in Economics/International Business.
In 1999, Mr. Morgan put his life long study of free-market economics to work researching the economy, stock market behavior, precious metals, especially silver. Mr. Morgan believed that silver needed more exposure and would be utilized increasingly as technology continued to demand more and more of the metal.
He is considered an insider of the financial markets and publishes regularly in Barron’s, The Wall Street Journal, The Herald Tribune and other publications, foremost on silver and macro-economics. He gained great fame as editor-in-chief at the membership service „The Morgan Report“ that can be accessed under: Silver-Investor.com. The German version „Der Morgan Report“ can be ordered at: www.morgan-report.de. He is the author of „Get the Skinny On Silver Investing“ (Morgan James Publishing, 2009), and featured speaker at investment conferences in North America, Europe and Asia.
David Morgan lives in the State of Washington, U.S.A.
Mr. Morgan, is the worst of the financial crisis behind us?
I would like to believe that the worst financial crisis is behind us. However we have not solve the basic problem of Fiat money. And because of that fact we must look at the longer term repercussions of the current system. And that means that we probably do have more tough sledding ahead of us.
Until the financial system on a global basis is put back on some type of financial structure that absolutely guarantees stability and integrity we will have greater problems in the future.
Can the crisis a) actually be solved, and b) by the means we have seen so far, e. g. bailouts and austerity measures?
a) The crisis can be solved by putting the world back on sound financial basis such as a gold standard. There are also options that would entail a limited money supply growth but this requires complete honesty in the system and because mankind is at the heart of all financial systems the basis for this is to be determined.
We look at that issue in a couple of reports of the Morgan report and in cases that we studied we have a social construct monetary system they always fail. However a straight gold standard also has problems because usually the bankers are control the gold and after sometimes it morphs into a paper gold system and finally back of Fiat system.
b) There is no way that adding more debt to abate debt-based monetary system will help solve the problem.
The year 2010 was a bit the year of the „Currency War.“ What is your interpretation of this so called currency war and is there a link to precious metals?
The currency war involves everybody trying to get an edge up on their neighbor by lowering the value of the currency. This never works and only causes suffering and pain for everybody involved having a weak currency is by no means a way to resolve the current financial problems.
Gold and silver are the ultimate currencies and have been for a very long time. As we all know all currencies are moving down against gold and gold really doesn’t change so actually was taking place is devaluations at different rates on a global basis continues.
At this time there is the link to precious metals is there is one to be installed than that might stabilize at least one of the currency systems. This remains to be seen however. The very long future perhaps China will be backing their currency with gold or perhaps some other nationstate but I don’t see that taking place in the very near future. Although in today’s world anything can happen so the state it will take place in the near future perhaps be surprised but normally bankers put off the inevitable long as possible.
Alright, let’s turn to silver. Why has silver almost always been known as the peoples‘ metal? And do think it has again a future as a major monetary metal?
Silver has been known as the People’s metal for a very long time. This is because it is used in day-to-day transactions it’s known as the merchant class metal this is what takes place on a daily basil among the majority of the world’s population.
Silver is rolled monetary metal is to be determined certainly works best warm-up bimetallic standard and I hope that’s what takes place but I really question whether or not that will actually evolve in the new monetary system.
Since is actually less silver available for investment than there is gold it would actually seeing that the ratio of silver to gold would be different than it is at the current time.
I’m somewhat hopeful that silver will find its way back to the monetary system but I doubt it. It is much more likely that gold or some pseudo-gold standard will take place but I doubt silver will be involved.
A lot of talk on silver is spend by focussing on the gold/silver ratio. What is the gold/silver ratio, why is it important and where is it today at the end of 2010?
The gold silver ratio is the amount of gold to silver in price terms. For example a 50 to 1 ratio means it takes 50 ounces of silver to purchase one ounce of gold. It is important because people like to know what is the best investment in precious metals classes gold silver actually platinum or palladium. The ratio began about 80 to 1 in 2003 and now stands at about 48 to 1. This clearly shows that silver has outperformed gold in this bull market so far.
Is it more difficult to analyze silver than gold?
It is much more difficult to analyze silver. The statistics of silver are hard to obtain there too many variables and there’s so many new applications that analyze in the silver market is much more difficult than in gold.
Since gold is primarily in this investment only metal, and silver is both industrial and the precious metal is much more difficult to analyze both aspects of the silver market that is the gold market.
How do you see the performance of silver in 2010?
The performance of silver was far superior gold in 2010. 2011 I see silver also outperforming gold although it may not do as well as it is done in the previous year. I do believe that the ratio will drop from 48 to 1 probably the 41 some time during the year 2011.
One highly important story for silver has to do with the Gold Anti-Trust Action Committee, GATA. As you know, GATA believes The Gold Cartel (e.g. JP Morgan) has been a major factor in suppressing the silver price. Since GATA outed Morgan on March 25, 2010 at the CFTC hearing, the price of silver has
risen $13. What do you think about GATA’s assertions and do you think the rise in the price was just a coincidence?
GATA has been instrumental in determining a lot about what goes on in the silver and gold markets. I believe most of their assertions are foundational a sound. However there are is also an opinion on the markets as well.
I believe that the overall CFTC hearings were very beneficial to both the gold silver markets and certainly were very very much a part of making this possible.
Could you try your best, please, and explain the price manipulation of silver in a way that every one of our readers and listeners can understand it?
Any stock or commodity moves on price pressure either they’re selling pressure or buying pressure. For a very long time the market doesn’t care the selling or buying pressure is real or fictional. In the cases silver and a lot of silver is sold on paper that doesn’t really exist the market really doesn’t care the price will move down. The market only cares if the sale is made an actual physical silver is absolutely required to in the transaction.
This is the point that we may be seeing very soon in the silver market.
Moreover, could you address especially the over-the-counter derivatives aspect related to it that is not going on in the U.S. but in London?
The over-the-counter markets dwarf the Comex. Because of this fact stricter regulation in the Comex may have an effect on the market because that is where the prices determine most of the day. However to rule out the OTC influence is not look at the entire picture. It seems to me that the big banks might be using the OTC market to hedge their bets so to speak.
If stricter regulations are put in place on the Comex the OTC markets will probably gather more and bigger positions from the banking entities as exist today.
Is the Value Added Tax a thorn in your side as an investor in silver?
I’m not in favor of the VAT on any commodity for any reason whatsoever. It goes against everything that’s free market.
The CFTC doesn’t seem to be very busy with regards to new position limits. Why do you think so?
I’m not sure what the CFTC’s doing presently regards to position limits. In fact I think they are actually looking at it quite diligently. It’s just a very big question on how to regulate it properly and was regulations are in place how do you enforce them? I do believe there’s been enough pressure put on the CFTC that they must make some kind ruling here in the not-too-distant future. However as we all know they have delayed or postponed the ruling and it will not happen the middle of January 2011 we do not have a new date to expect the new ruling.
Do you support Max Keiser’s „Crash JP Morgan, buy silver“ campaign?
I’m in favor of any campaign against the truth out to the people.
Can you talk a bit on supply and demand in the silver market? How much is the industrial demand for silver for example?
The supply demand fundamentals that favorable for silver for a very very long time. Right now roughly 50% of the total market silver is for industrial purposes.
For what reasons should anybody invest in physical silver?
For all the reasons anyone would best in physical gold. Silver like gold represents wealth a safe haven and also the money of last resort.
And for what reasons should people buy mining stocks?
People buy mining stocks to gain leverage in the markets. It’s also way to get very very good returns if there’s a discovery mine. Generally the mining equities outperform actually on by a factor of two or three times. However of the advent of the ETF’s this is not been the case of the last few years.
Will the production peak in the future? And if this is the case, then how long is peak silver away from today?
According the USGS there is nine years of silver in the ground at current prices. Peak silver may take place in hypothetically would take place probably within the next four years or so. This is a rather crude answer because as silver prices continue to increase in value that means that the mineable silver also increases in duration.
One last question, Mr. Morgan – which is in fact a huge question. In Munich you gave a presentation with the title „Silver – the next ten years.“ What should people expect in the next ten years insofar it is related to silver?
Not such a big question, what they should expect is that silver will out perform almost any other commodity asset available for investment.
Thank you very much for taking your time, Mr. Morgan!