Gold is Doing Its Job…Silver Will Come Back as a Safe-Haven Asset
Commodities / Gold & Silver 2020 Mar 19, 2020 - 10:58 AM GMTBy: MoneyMetals
Mike Gleason: It is my privilege now to welcome back our good friend David Morgan of The Morgan Report. David, it's always great to have you on and appreciate the time as always. How are you sir?
David Morgan: Well, Mike, I am doing well personally and the markets aren't, but I'm hanging in there and thanks for having me on the show.
Mike Gleason: Yeah, definitely overdue, and great to have you back. Well David, we are seeing tremendous volatility in markets. The coronavirus is getting the blame for a huge sell off in stocks and in epic rally and bond prices. Commodities, oil in particular, are getting hammered. Maybe the only thing predictable about the recent market action is the Fed's response. They did another emergency 50 basis point cuts and a lot of people expect them to cut another 50 basis points when the FOMC meets later this month. What is your take on the turmoil, David? Is this a short lived phenomenon and will markets recover as soon as the fear around the virus dissipates? Or we looking at the start of something more serious and maybe the bubble and equities is finally been popped?
David Morgan: Well, I think from a longer term perspective, it is 2008 part two. Really, the fact is after the financial crisis of 2008 where these bank stopped trusting each other and money actually stopped flowing, the Fed, right or wrong, came in and immediately exchanged this worthless or toxic subprime mortgages that the banks didn't want anything to do with and stop trading with each other and replaced it with basically treasury bills, which is the sacrosanct debt that anyone would ever want, right. So it basically kept us from having, basically a total meltdown. Obviously it was a pretty big meltdown. Well, from that time until this, it's basically been Quantitative Easing, one, two, three, four. It's been Operation Twist. It's been buying the long end of the yield curve. It's been pumping money into the elite so they can buy Baptist stock and, and lower the floats so that the price goes up and the CEOs get big bonuses.
But the systemic problem in the underlying financial system really has not been addressed. So, now we have more debt than we had before. We have probably more bad paper if you factor in, not subprime, but you look at student loans, you look at pension fund problems, you look at interest rate swaps, you look at the derivatives market and you look at the over-leverage in the stock market. We're probably set up for a bigger fall than we were in 2008 and that's the truth. So, I look at the long-term is 2008 part two.
From a short-term perspective, if we do get some kind of resolution on this virus situation, yeah, there'll be a relief rally. From a Fibonacci perspective, let's say the market ends up down 10,000 from top to where this virus situation subsides, and then it takes back and moves up 5,000 or one half retracement. That could be a fairly likely scenario but it hasn't fixed the systemic problem I just outlined, which means that you're probably going to get a further sell off after that relief rally and continue down.
What most people don't even realize is where we are in the United States stock market. Let me elaborate a little bit Mike. So, most markets go from undervalued to fair value to overvalued or from overvalued to fair value to undervalued. And it has that cycle over a long period of time. When we had the 2008 sell off in the stock market and I think the Dow got down to what, I forget the number 5,000 or something. What I do know is at that level stocks were fair valued. They weren't undervalued. They were fair valued right there. So, if we take whatever the inflation rate was from there until now and put a fair market value on the S&P 500 or the Dow or both, we've got a long ways down before we're fair valued again. We're still over-valued. So, that's my take on the stock market, Mike.
Mike Gleason: Well, it does seem like stocks were priced for absolute perfection for a number of years here and now we don't have perfection. We have an economic situation that's taken place because of the coronavirus and maybe that's the straw that sort of broke the camel's back. Obviously we got a lot of algorithms trading and these high frequency trading outfits and machines and so forth and it can kind of get bad as everybody runs for the exits at the same time. It sort of builds on itself, doesn't it?
David Morgan: Yes it does. And there's tangents that come off of it too. I mean you've got the overall market, then you've got to have the gold market intersect it. What does the oil mean to the overall financial system? And I mean on and on it goes Mike. So we are in my favorite expression, I said a hundred times, interesting times.
Mike Gleason: Yeah, we certainly are. Well switching the focus to metals. Gold in particular has done fine. Obviously silver has been sold along with stocks and commodities. Do you think we will see more futures market selling or will metals start to get a bid perhaps because speculators anticipate some safe haven demand and start buying futures or because the Fed is pulling out all the stops on stimulus… or both? The U.S. Dollar is not looking too good here. It's been falling in currency markets despite the turmoil. Let's get your thoughts here on metals and how they're reacting to things.
David Morgan: Sure. Well gold is doing its job. Gold came off of bottom of December, 2015 and it's up from that level and it's worked through the $1,350 levels. Finally made a six-year high, hit the $1,550 level, which is resistance. Worked through that, we're up at $1,700 gold in U.S. terms in the aftermarket, just a few trading sessions ago. So gold is responding, gold itself, not gold stocks. And sure it goes up and it was down, what, 60 bucks in one trading session a Friday, a week and a half ago or whatever. And then by the next Friday, it had taken back that $60 it had lost. So, these are very volatile markets in gold, especially gold equities are about the highest beta stocks, meaning beta ladies and gentlemen just means how volatile are given set of stocks. What do they do? And the gold stocks are notorious for big moves up and down.
So anyway, gold, I think doing quite well and it's signaling us that there are more people coming in the gold markets seeking a safe haven and gold is the answer for right now. Silver on the other hand has gone to the hundred to one ratio, which it's only done a couple of times previously and that has signaled the financial crisis in the past. So obviously I'm believing it's signaling the financial crisis, which we're probably in right now. So it's done this job there. As gold becomes more and more of a safe haven and there's more price pressure in gold and the gold stocks start to recover, I think you will see some people starting to move into the silver market. I mean this gentleman, Scott Minerd from Guggenheim, who's their main investment advisor authority or the chief investment, I guess, officer, I don't know if there's such a term.
He was asked at Davos by some financial news reporters from Bloomberg, what was his go to trade for 2020 and he said silver. And a Bloomberg gentleman kind of rocked him on his heels a bit, said “Silver, why not gold?” And Mr. Minerd said, because gold is pretty near it's a nominal high, but silver is about 65% off. And silver is an undervalued asset. That's pretty close to what he said. And then the reporter went on to ask him, he said, do you think that, he didn't say silver, but do you think the metals could perform like the non-precious metals have recently? What he meant by that was could gold and silver perform like palladium even though in my view he stated, it was well understood what meant. He was saying these other two metals, can they perform like palladium? And Scott said, I think there's a high likelihood of that.
So, there's a guy that's managing a lot of money because I looked it up. In fact, I wrote about it in The Morgan Report two months ago. The amount of money that if they devoted to the silver market could certainly have a huge impact on the paper price if silver.
I'm going to digress a bit further Mike if you don't mind. But when we look back in history, when (Warren) Buffet bought in 1999, he bought a hundred, almost 130 million ounces of physical silver and it took the market up from about five to by eight and a half, which didn't double it, but moved it quite a bit. And when he reported that year, I got the Berkshire Hathaway annual statement because it's part of my job to report on the silver market and the word silver never showed up. Are you kidding me David? David Morgan, silver didn't show up and the Berkshire Hathaway and he bought 130 million ounces of silver, about 25% of the supply. Are you kidding?
And the answer is, I'm not kidding at all because by law, if you are a company like Berkshire Hathaway, well you're an investment company basically. You only have to list out in detail anything that's greater than 2% of your asset holdings. And since that amount of silver was less than 2% of what Berkshire held, they just said they made a miscellaneous purchase and that miscellaneous purchase happened to be 130 million ounces of silver. So, I think that gives some people an appreciation for how small the silver market is and there's somebody as smart as Scott Minerd and he is. I could go on and on… let me just say this. When I hear his interview, I go, well that guy thinks just like me. So either we're both smart or maybe we're both missing something. I'll say it that way, but very interesting.
So, I circled into gold. Gold is doing its job. Silver is lagging. Silver will come back. Silver is a precious metal. Silver is acting like it's only an industrial metal or a base metal. It's doing absolutely nothing, disappointing everyone. It's been there before. It's done that before. I'm just so old, I know that from my own experience. But it will come back as a safe haven asset again and as a precious metal. And it's a spike. I mean these hundred to one ratios usually don't last 10 years. They're a momentary thing on a chart. It might be a month, might be two, I don't know. It could more likely going to be about a month and a half or so. But we'll see. But normally it'll last long. So we'll see silver start to outperform gold and go from a hundred to one and 90 to one, 80 to one, 70 to one and we'll what happens. But it's tough. It's tough on silver holders. I know that, I'm one of them.
Mike Gleason: Yeah, 30 to one, we saw that or 32 to one, right in that ballpark less than a decade ago there in 2011. So those days are not too long ago and certainly could happen again if silver does outperform eventually you have to think it well. Well speaking of silver, David, man it has such amazing uses when it comes to antibacterial and antiviral applications. A pretty important metal at a time like this isn't it?
David Morgan: Well, it is. If you don't mind me saying it Mike, there is a way to take a look at that. If you go to TheMorganReport.com/silverwater. If you do that you will find an interview I did years ago in Salt Lake City with two doctors. You see the interview and you can make up your own mind what you want to think about silver's properties, but it was a pretty interesting interview and I saved it basically for those that are interested in a structured silver water and what these doctors have to say about it.
Mike Gleason: My wife has been breaking out the colloidal silver here of late as we try to sanitize things and obviously just sort of practice good hygiene, especially at a time like this.
David Morgan: Let me interrupt you there, sorry. But there is pretty, I think it's a legitimate report that the Chinese in some areas were taking one of these spray canned things and it was basically a company from the United States that produces this the silver water that is a biocide. Silver is a biocide. That's a fact people. And they were using it as a spray down mechanism to basically sterilize the areas for this virus situation. So, maybe there'll be more of that in the future. I don't know. But I thought it was pretty interesting that even the mainstream news mentioned it, that it was being used. And I've said for years, if you really want to keep the public health at a better level, you would use nano silver. We're not talking an ounce of silver and a doorknob.
We're talking just pennies worth the silver, but you need to do every doorknob at every public facility, every airport, every school, every church, every corporate building, every government building and everything else, it would add up. And you can use copper, copper is pretty good. But silver obviously is the best. Is that going to happen? I doubt it. But the point I'm making is that it's that important if you want to keep bacteria at bay. And the higher end Japanese cars put silver in their steering wheels. So, when you're holding on to the steering wheel, you're basically, no matter what's on your hands, you're not going to carry any germs.
Mike Gleason: Yeah, pretty interesting and amazing uses in silver for sure. Well, switching gears here a little bit, David, politically, you got to think the potential economic meltdown here could put Trump at risk, seems like things a couple months ago, looked like Trump was a certainty and was very safe for November. But maybe now he could be falling victim to an economy spiraling out of control, which seems like maybe the only thing that could derail his re-election bid. Any thoughts there?
David Morgan: No, I agree. I don't really have much to add, Mike. I think you hit the nail on the head. I mean every election is pretty economically dependent. The old Clinton (line) who I'm not a big fan of, but he was president for two terms. It's the economy stupid. I mean it carries a lot of weight with a lot of people and you said it. I mean it's possible that things, if the economy gets "destroyed", I don't want to be too panicky here, talk in hyperbole. But it is a concern and it could be enough of a concern and people say, next, let's vote in who knows? I wouldn't even say it because I am equally distrustful the whole political class. But regardless, someone's going to fill that vacancy or Trump will get reelected. We'll just have to wait and see. But you make a great point.
Mike Gleason: Yeah, it's going to be very interesting to see how that develops throughout the rest of the year and what kind of blame, I guess he takes. He has taken ownership of the stock market in the past and that could end up being to his detriment. Maybe we'll find out. Well as we begin to wrap up here, David, any parting words for folks here today as we are looking at some serious tumult in the markets and in society as a whole? Any comments to share with us as we close?
David Morgan: Yeah, one I think is stay calm, don't panic. The human species is quite adaptable and we've survived almost everything. But I want to move on to a different topic and that is this, I've been getting more and more correspondence communications with people that are worried about the next bale in and you cannot basically go to your friendly local banker and say, hey, “I've got 100,000 in my bank account and I'd like to cash it out.” They'll tell you to stand in line, sign a form, take a thumbprint, get three photos, and you could get $5,000 and you got to wait a week for that to happen. So if you really want to move some of your savings out of the bank and into your own hands, the best way to do it is to invest in precious metals.
And I obviously favor silver and have for some time, but of a hundred to one ratio, I wouldn't say go all in on silver. I think you should own both. And I said that basically from the beginning. However, it's a good way to cash out pretty quickly. Just find a trusted dealer like you have there, Mike. I've known you and your brother for quite some time and I've never heard of one complaint. I'm sure there's always a disgruntled somebody somewhere for something. But regardless, it's one of the best and I don't recommend very many as you know. So I would say if you're out there listening and you're worried about having too much cash reserves in your bank and you think this next bail out, which is now against the law will be a bail in which is in the law, and you have a lot of cash at risk in a bank, you might consider moving some of that through Mike and Stefan and whoever works there to get this precious metal into your own hands. And if you don't want to hold it, they have a storage facility right there in Idaho that I visited as it was being built. And I'm not big on storage really, but there are cases where it makes a lot of sense. And that's one, again, I would vouch for. So Mike, there you go.
Mike Gleason: Well thanks. I didn't put you up to that, but certainly appreciate the kind words and it means a lot to us coming from you and certainly appreciate it. Well good stuff. It's always a pleasure. Always love getting your insights and before we let you go of course we got to have you share with the folks about The Morgan Report and how they can get on board with your great service and the information that you put out there and how they can follow you more closely.
David Morgan: Sure. So the easiest things could in our free newsletter list, which is TheMorganReport.com. And then we have a paid service. You can go to the subscribe tab, pull down, watch the video and read. And I'll just repeat, if you're interested in a silver biocide properties, just type in TheMorganReport.com/silverwater. And you will see a pretty big set of videos that I did years ago interviewing two doctors that are extremely familiar with what silver solutions can do in the field of biocidal properties that can do everything from like decontaminate your floor, the air or whatever to help situations. So if you're interested, go for it. If not, then don't. It's that simple.
Mike Gleason: Well, thanks again David. All the best to you. Strap on for what is likely going to be a wild ride and we'll look forward to having you back on here in the not too distant future. And in the meantime we'll be following the great stuff you're always putting out there at The Morgan Report. Thanks again for the time and have a great weekend my friend.
David Morgan: You bet you. Take care. Thank you.
Mike Gleason: Well that will do it for this week. Thanks again to David Morgan, publisher of The Morgan Report. To follow David just visit TheMorganReport.com, you can also follow him on Twitter, it's ;@silverguru22 and if you haven't already, grab a copy of his book titled Second Chance: How to Make and Keep Big Money During the Coming Gold and Silver Shock Wave, which is available at MoneyMetals.com and other places where books are sold. Be sure to grab a copy of that today and then check out TheMorganReport.com and start getting his wonderful commentaries that David and his team put out there on an ongoing basis.
By Mike Gleason
Mike Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.
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