David Morgan: “During The Last Bull Market, Alot Of People Gave Up At $100 Gold”

During a time of ongoing pain in the precious metals and mining sector, David Morgan, publisher of The Morgan Report, was kind enough to share comment.

David began studying the silver market at age 9, participated first-hand in the 1970’s bull market, and over the last 40 years has become one of the world’s most experienced silver investors--earning him the title of “The Silver Guru”.

Here are his interview comments with BullMarketThinking’s Tekoa Da Silva:

Tekoa Da Silva: David, gold has been stuck in a frustrating sideways pattern for more than two years now. Silver has been even more volatile. When you look at the silver market, the supply, the fundamentals, the pricing behavior compared to gold, what are your thoughts?

David Morgan: There’s higher lows going back the last three months on the XAU, the HUI and the GDX. They’re so low right now, but we don’t know if the bottom is in or not, but it sure looks like it to me.

As far as the metals go, I’m pretty sure that the key reversal on the 28th of June was it. But again, time will tell. I mean everyday they trade above that shows that that was the bottom. We’re at $22 oz. on silver which is a far cry from the $18.37 oz. or whatever it hit in intraday but it’s not untypical of a major bull market like we’re in to get a massive pullback like we’ve seen.

Gold as you said – I think it was September two years ago and silver actually peaked before gold, at the $48 oz. level around the first of May 2011. So it has been really trying on metals investors over the last couple of years. Again, this isn’t that uncommon. I recall in the first bull market – I’m that old – that we saw gold from its official fixed price unleashed in ’71 move all the way up to $200 oz. over time.

Then under William Simon’s time at the treasury, it sold off substantially and moved down to just a cat’s whisker over $100 oz. I remember the gnashing of teeth, people couldn’t believe that gold had been at $200 oz. and it’s now at $100 oz.

A lot of people gave up and it took some time to work back to $200 and even then people thought, “Well, it’s a double top.” But [selling] was the wrong thing to have done because then it went from the $200 oz. mark to $850 oz…in a fairly short period of time.

I will be speaking about that in my presentation at The Silver Summit on Oct. 24th-25th about how markets move in general.  Look at the tech wreck, look at the housing bubble. In every market there gets to be an acceleration point where it becomes the “got to have” investment.

Once that happens, you get acceleration in price to the upside and I really expect that to happen in metals but it’s not here. It’s not now and it’s not going to be this year. It’s probably not even going to be in 2014. But I’m very confident it will take place.

TD: So what do you think we need to see David, as a sign that would suggest that that upside process is finally beginning to occur?

DM: I think once we get through this overhead resistance which again is going to take time when you see silver get above $26 oz. and gold above $1550 oz. That was the breakdown point. That was the point where just about everybody and some of the most ardent bulls gave up on the market.

Those levels held support for a long time before they broke through the downside. Once we achieve and maintain that level on the upside, and once we build a base, we’ll start moving higher.

Then I think a lot of smart money that has left the sector will start coming back in. Once that volume picks up, then I think you’re going to see a lot more upside. But again it’s going to take time but if you know these things ahead of time--one of my favorite quotes is, “Chance favors the prepared mind.”

If you really think through what’s going on, fundamentally things haven’t changed. I mean they just announced Janet Yellen to take over from helicopter Ben. This is something that people should consider. She’s very much a dove, at least what she says. We wrote about her in The Morgan Report last month. Certainly most people are expecting easier and easier monetary policy out of the Fed for a while with her at the helm.

So again the fundamentals, to keep stressing that, but you have to again go back and know why you own it.

TD: David, we saw interesting things happen all throughout this year in the physical gold market, inventories disappearing out of the warehouses, the physical being vacuumed up all throughout Asia, and that’s against the backdrop of a falling price. So when you look at the silver market do you see any of those clarion calls happening?

DM: Overall, is the market still tight on the silver supply and the answer is yes. It is. But is it so tight that someone buying another box of silver eagles is going to take the market higher? No, it’s not that tight. But overall, it’s still I think a better investment than gold relatively speaking because it has been more beat up than gold.

However, both silver and gold, particularly silver are at the margin right now. The margin means what it costs a primary silver producer to get it out of the ground and refined. It’s around $22 an oz. and that’s where we are. So anytime you can buy a commodity at or below, especially below the cost of production, and have some patience, you’re going to make some money.

I don’t think it can go a lot lower than it is right now. I wouldn’t say that it can’t but it wouldn’t stay there for very long. You can’t run any business at a loss for a long time. It can happen for a while and you can suck it up and move on but again, it won’t last for a very long time.

TD: David, you mentioned a minute ago The Silver Summit, that you’re going to be giving a presentation there. What’s the value of going to a show like that right now in this type of market that we’re in here?

DM: Well, it’s probably the most silver-focused event anywhere. We started over 10 years ago and I know what we had then. We had 112 people who showed up from all over the world – Australia, South America, Europe, all over the place.

So the silver bulls are certainly alive and aware. It has grown to probably 1000 or more now. So I think if you’re investing in the sector, you should stay abreast of what’s going on. So it’s worthwhile from that perspective. If you’re hungry for a good opportunity, I mean these stocks have really been beaten up. It would behoove anyone that would like to have a high potential gain and some patience to go and visit some of these companies because they all put up booths and you can in many cases talk to the CEO or the geologist or both, face to face. There are not too many conferences where you can do that.

Lastly, if you’re down on a particular company that you’ve held for a while, and they’re showing up at The Silver Summit, it’s a great opportunity to go face to face with the company or the company representatives and determine whether you should buy, sell or hold.

In other words, you might want to add. You might want to sell. You might want to hold it and that’s a great place to do it. And we have both sides there--in other words, there’s a lot of people very bullish on silver, and that’s the majority, but there are others that are really not too keen on the silver market and they have their forum and their day to speak as well.

So we try to keep it balanced. Obviously it’s more bullish than bearish but nonetheless, you will hear both sides.

TD: David, what are your thoughts on the value of mine tours, of actually going in and seeing a working silver mine? Because I know that’s going to be part of the agenda there at The Silver Summit as well.

DM: Well, a lot of times, just seeing it is very important. Whoever the company is, generally speaking…they’ve always got “the best property, the best location, the best infrastructure, the best mining manager and the best geologist,” and they all say that.

So what they consider to be the best infrastructure you might say is horrible. For example you can get there in the summer but you can never get there in the winter, or the townspeople don’t like the way the project is being handled, and that’s very rare by the way.

But when you’re on the ground, you can get a much better sense of what the water supply is, what the townspeople are like, how far it is from the nearest mill, on and on and on. And hearing it from some mining guys, that’s fine; but being there means a lot.

As an example one time early on, there was a certain site that I actually liked. It was high grade, had everything I liked. The problem was – and no one is going to like me saying this but I will. It was really too close to the marijuana fields and because of that, I just backed off. I just felt that it was not safe and no one really talks about that in the mining industry and to be honest with you Tekoa, I was naïve. I never really thought about it that much but that’s the benefit of being there on the ground and seeing who’s running around and who isn’t.

TD: All right, well David, what we’ll do is include the link to The Silver Summit here in the article, so for people that want to listen to your presentation or learn more about the show can do that. Otherwise, is there anything you think we may have missed?

DM: No. I appreciate your time and I would again state that if you’re interested in the sector or you’re about ready to give up or throw in the towel, take a deep breath and if you can afford it, come down to The Silver Summit. Get one on one with whomever – your favorite speaker or speakers.

Get with the companies that you own or want to own, that type of thing. I think it just behooves you to actually get it from the horse’s mouth so to speak before you make rash decisions.

I hate seeing people sell at the bottom, only to see it just start moving away from them. Not that I don’t make errors but I’ve seen that time and time again where people just give up at exactly the wrong time and then the market starts moving up and starts to move up slowly and they’re just sort of like, “Oh, it’s coming back or I will get it when it’s lower,” and that never happens. So word to the wise, stay balanced. Don’t put too much in the sector. Get good information. Trust yourself and I guess I would leave it with that.

TD: All right, well David Morgan, publisher of The Morgan Report, thank you so much for sharing your comments with us again.

DM: Tekoa, thank you so much.

For reference, David Morgan will be presenting at The Silver Summit, in Spokane, WA, from Oct. 24th-25th. To learn more about or register for the event, visit, Cambridge House International.