Morgan argues that after a 10-year bull market and a long, 2-year consolidation period, silver is poised for a major move to the upside. He said, “Perhaps 90% of the move is left to go.”
The largest moves in any market upturn are near the end, when explosive gains can occur. If you look at the housing, tech and Japanese stock bubbles, the largest gains were right near the end of the bull run, when the market increased exponentially.
As I’ve discussed before and highlighted in a recent interview with Egon Von Greyerz, founder and managing partner of Matterhorn Asset Management, this big move is going to be based on fear about the value of fiat money. Morgan agrees, arguing that the rush into silver is going to be caused by the “fear that any government currency will not be worth tomorrow what it is today.”
In an interview, I asked Morgan, everything else being somewhat equal, what are things going to look like in 2014 when the Fed releases its lock on zero base interest rates. What’s this going to do to the dollar, inflation and the recovery in general?
“Well, the Fed sets the discount window and they set the rate that banks can borrow from each other, and the rate the bank can borrow from the Fed… and put that money to work at a higher interest rate, and that is called the spread. Any time you get a positive spread you are going to re-liquefy your balance sheet. The Fed is doing that deliberately because the banking system failed. But it’s not failed to the point where we cannot get to our money. Having said that, the market actually controls interest rates beyond the discount window the feds uses to set rates. So you can actually see an increase in interest rates by demand or demand and supply of the money system itself that could take place. So far it hasn’t, but bond buyers are the Fed and the Fed is actually buying its own debt so to speak.
The treasury and the United States government borrows all the money into existence, they are really not printing it directly. Then when the treasury wants to sell off or borrow more money the Fed goes ahead and purchases some previously issued loans and creates actually cash into the system.
Regardless, I think you are going to see a different situation… and of course most people reading this interview do not understand money or inflation. They don’t get it. Well, I was only making $12,000 a year in 72. Now I make $82,000 a year. That is a lot bigger number, but those numbers are just for the idea, the idea that it might put you in a positive. I don’t know but the point is you have a lot more dollars, your standard of living is only maintained because you put your wife to work and you got a second job, and maybe made a couple good investments. In other words, the person’s power of the average Americans life wealth status has actually gone down, not up during that time frame and this is something that’s critical. That goes back to what I write about money, metals and mining.
I keep pounding in my reports and in the public domain about the seriousness of this problem because people often say, well… no one told us or… I don’t understand. And you are not going to see me very often on CNBC. I do get on Fox business actually fairly regularly, but nonetheless I don’t run into a lot of people telling the general public, the investing public the truth about these matters.”
With government debt rising, the global economy shrinking, and increasing concern about the value of paper currency, which governments are printing with wild abandon, gold and silver appear to be, more and more, a safe haven of real value.
1980 silver peaked at about $50 an ounce, which is about $143 in today’s dollars. Morgan said that, if he is correct, “the majority of the move lies ahead.” He sees the possibility of silver reaching $300 an ounce.
Even if silver only goes half that high, the return on investment of a purchase of silver today would be significant.
In a recent interview, I asked Eric Sprott (Sprott Asset Management) the following question: do you still feel silver is the best investment of this decade?
And he said:
“I absolutely do, and the one thing that most strikes me when I look at, for example, the US Mint web site, and I look at the dollar value of gold sold and the dollar value of silver sold, and I see that investors bought as many dollars of silver as gold, which means they bought 50 times more physical silver than they bought gold because the price is over 50 to 1. But when we look at production of silver, there is about 11 times more production of silver than there is gold, but half of silver’s production goes to industrial production, whereas almost all gold production is for savers, which then takes a ratio of about 6 and a half ounces of silver you can buy every year for investment versus one ounce of gold but people are buying it 50 to 1.
When we did the last Sprott Physical Silver Trust ETF (NYSEARCA:PSLV) issue, we raised $320 million. We did the last gold PHYS issue and we did $349 million. For all intents and purposes, almost the same amount. Okay, we almost bought about 50 times more silver than gold. How can investors buy silver in a ratio of 50 to 1 when it is only available at six and a half to one? That cannot last. So that’s why I think, you give it time and you take the paper guys out of the market, the Comex and all this ridiculous trading of paper silver that goes on, the physical story will win out and we will go back to a more normal ratio, such as 16 to 1. If we go to 16 to 1, silver will triple the performance of gold, and gold will have a great performance as well. It is a super-charged story.”
For a more realistic and shorter term view, let’s take a look at the technical picture and see what trading opportunities we can identify for next week’s live trading action in silver and the gold markets.
The April gold futures contract closed at 1576.40. The market closing below the 9 day MA (1683) is confirmation that the trend momentum remains bearish. A close below the 9 MA would negate the weekly bearish short-term trend to neutral. With the market closing above the VC Weekly Price Momentum Indicator of 1575, it confirms that the price momentum is bullish. Look to take some profits, if long, as we reach the 1588 and 1600 levels during the week. Buy corrections at the 1563 to 1550 levels to cover shorts and go long on a weekly reversal stop. If long, use the 1550 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).
The May silver futures contract closed at 28.93. The market closing above the 9 MA (28.85) is confirmation that the trend momentum is bullish. A close below the 9 MA would negate the weekly bearish short-term trend to neutral. With the market closing above the VC Weekly Price Momentum Indicator of 28.84, it confirms that the price momentum is bullish. Look to take some profits, if long, as we reach the 29.35 and 29.77 levels during the week. Buy corrections at the 28.42 to 27.91 levels to cover shorts and go long on a weekly reversal stop. If long, use the 27.91 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).
Related: iShares Silver ETF (NYSEARCA:SLV).