David Morgan: Silver Moving Towards Par With Gold!

With gold and silver continuing their strong advances in the wake of the Fed’s QE∞ announcement last Thursday, The Doc sat down with silver expert David Morgan for an EXCLUSIVE INTERVIEW regarding gold and silver’s fundamentals and where Morgan sees the metals heading over the next 12 months.

Morgan believes the big gains seen in the metals over the past month was the market pricing in QE3, but believes particularly silver has much room to run, stating that the metal will most certainly double from here, and will most likely triple from here.  Morgan believes silver’s nominal high near $50 will be broken to the upside in 2013, with silver likely reaching $60-$75/oz over the next 12-15 months.

Morgan also discusses the current supply side for silver and the massive physical tightness in the market, potential BIG, BIG problems for Barrick if it’s Pascua Lama mine fails to reach production (anticipated to produce up to 40 million oz annually).

The market’s premier silver analyst concludes by discussing his expectations for silver to massively out-perform gold going forward, and states that he expects the silver/gold ratio to narrow to at least 10 to 1, and states that silver is moving towards par with gold!

The Doc’s EXCLUSIVE MUST LISTEN interview with silver expert David Morgan of Silver-Investor.com is below:

 

 

Regarding his outlook for silver, Morgan states be believes that silver may never be seen under $30 again:

‘I’ve told everybody that anytime you can buy silver under $30/oz or the equivalent in gold, do it, for the long term.   These are physical precious metals purchases.  It might have looked like not that great of a statement until recently, and now will we ever see $30/oz silver again?  I don’t know, but I doubt it!   We might get a pull-back to $32, it could pull back to $30 or $28, but I doubt it, I think the time to accumulate over the past 15 months was a gift!  Unfortunately most people don’t buy the gift, they wait hoping to see it go lower, and of course it doesn’t, so they end up buying higher.

 

When asked about the ease in which silver recently cleared the $30 level recently Morgan replied:

I really like the way silver is trading, it’s trading very bullish as if the shorts are scrambling to get out.  There’s alot of short covering going on.  From the latest COT report, the Big Boys are kind of playing tough, and it doesn’t look like that much short covering is taking place yet from the commercial side, but that remains to be seen.

 

Regarding speculation that the other commercials might be turning on the presumed large short of JP Morgan Morgan stated:

Yes, it’s pretty clear.   I have to tip my hat to Ted Butler, he was really the first to bring the COT reports to everyone’s attention.  Yes, I think that’s a point to be made with the public COT data, but no one knows the real absolute true short position.  The reason I state that so emphatically is that all we can see in the data is what’s on the COT.    We can’t see what the OTC derivatives market looks like.    JP Morgan could be net LONG for all we know!  Now I’m not saying that they are, but what I am saying is that the OTC market DWARFS the public market, and between the Swiss banks and the offshore banks and all these other places that the bankers do their stuff – there could be a net position that doesn’t really line up with what we see in the public data.   That doesn’t necessarily mean that’s true, what I’m trying to point out is that we don’t really know their true positions.  We don’t know what their OTC positions are.

We don’t really know who’s on the hook!  Maybe JP Morgan has counter-parties with all the major central banks of the world and that’s why they keep so much clout!  We just really don’t know.  You need to really think about how the banking system operates, and how much is in the seen world vs. how much is in the unseen world, which for these derivatives which are taking down the system, are mostly in the unseen world.   We don’t really have any way of knowing what they’re doing.

 

When asked about Barrick’s troubles at it’s Pascua Lama mine as well as silver’s overall supply side fundamentals Morgan replied:

To give a little background, the Pascua mine was a huge, huge find.  In some of my earlier lectures I made a big deal about the size of that discovery, because it’s huge!  I stated that having between 20 and 40 million ounces of silver coming out of the mine on an annual basis once it hit full production would be significant- very, very significant out of one mine.

Now to the question- is it going to come out, can they do it economically, they’re on the hook with Silver Wheaton, what will happen? The answer is no one knows.  Is it potentially a huge hazard for Barrick?  Absolutely!
The cost overruns are substantial, on top of that this contract is locked in with Silver Wheaton- Barrick took the financing and it’s turned into a problem.  How big of a problem, we don’t know.

As far as the overall picture for silver production, the silver market is still very, very tight.  Silver was in a deficit for about 16 straight years until 2007.  Since then there has been a ‘surplus’ mining wise & recycling.   Mining supply does not equal demand.  If you add in the 200 million ounces that are recycled every year on top of mining supply there’s actually been a surplus.  That surplus is eaten up by investment demand.   Right now the investment demand has been doing well, and I think it will increase.

Silver is almost counter-intuitive.  You really see more demand as the price goes higher.  That’s insane because we’re taught in economics 101 that supply and demand regulate price.  That’s true in silver to some extent, but I’ve been watching silver for 40 years, and I know from watching it that it’s one of the biggest momentum plays out there.   The guys that trade whatever’s moving, they don’t care if it’s silver or Kumkwats, silver has a tendency to move violently both up and down, and they’ll jump on that momentum and you will actually get more volume as it’s moving up for awhile, until the price gets too high, and you’ll see alot of shorting and everything else, and of course you have to factor in the manipulation.
It’s a market that really moves when it catches alot of attention and big money.

 

When asked about the sustained uptrend in the silver/gold sales ratio by the US Mint David stated:

The market is much tighter than most people expect on the silver side.  That trend is something I predicted years ago.  As gold continues to go higher and higher, generally it becomes priced out for most people.  We are fairly close to $2,000/oz gold.  That’s approximately a mortgage payment, whereas silver is still affordable for most people at $30/oz, as well as the dynamics which are superior for silver than gold in my opinion.
I think you’ll see that trend continue, and it doesn’t surprise me.  I was actually a little surprised that it took as long as it did for that trend to become established.

 

The Doc then asked how David sees the sustained uptrend in the silver/gold sales ratio affecting the silver/gold price ratio:

Eric Sprott made a very good point several years ago that the amount of dollars going into gold and silver were about the same.  You’re verifying that- even a better ratio with the US Mint Silver Eagle sales ratio to Gold Eagles.
It will put pressure on the price of silver- more-so than the price of gold, for the ratio to narrow.   Remember we’ve already been down to 36-1.  It then rose to about 60-1 and now we’re back to the low 50′s again.

I really stated very early on that I felt the ratio would get to the classic ratio of about 16 to 1.  The natural historical ratio out of the ground is about 12 to 1, and today’s natural ratio is about 9 to 1.  This means that for every ounce of gold mined out of the ground there’s about 9 ounces of silver- globally on a net basis.

I really think you will see a ratio of about 10 to 1 at the top of the market.  Bunker Hunt believed that the correct silver to gold ratio was 5 to 1.   I’m not suggesting it will get to that level, it could get to 10 to 1.

I’m working on a study on whether silver could ever reach par with gold. I’m just asking the question and doing the study and giving my views to my paid readers.  What I’m suggesting is that the ratio is out of whack, and it’s going to move towards par.

There’s alot of hedge fund managers out there that are gold centric.  They really understand gold- most of the businessmen in Hong Kong understand gold, but they don’t understand silver at all.  The argument is always that it’s too bulky.
Well obviously at par (with gold) it’s not too bulky.  When is it not too bulky? At a 5to1 ratio? 10 to 1? 20 to 1?  I think once the manipulation is pushed out of the way, and we see the real price determined by the physical market, the free market will make that determination.

We know that when silver touched $50 (in the 80′s) the silver to gold ratio touched 16 to 1.   I think that this time it will do better than that, I really do.  Whether my guess of 10 to 1 is correct or not remains to be determined, but we do know that there is less physical silver available today than there was during the Bunker Hunt days.

We also know that it’s a global market today rather than just US people that were concerned about the US inflation that was rampant in 1979- 1980 until Volcker came in and raised interest rates enough to quell inflation expectations.

We also have a global financial situation that makes the 1980′s look like the most stable monetary system that ever existed in the universe!   We have alot of factors now that in my book make it almost a certainty that we’re going to see not only a new nominal high price established in silver, but a NEW REAL HIGH!    In today’s paper terms, that would be well above $135/oz.

I think we’re far from the top, and I don’t think it’s going to happen in 2013, I think the final high will likely be around 2016 which will be the tough call to make, and you will have to look at what will that silver purchase.    That’s what a free market is all about.  That’s the way to think about it at the top, because we could be in a currency crisis where the paper price is more or less meaningless.

 

SilverDoctors.com specializes in precious metals news, analysis, and commentary, and it’s bullion division SD Bullion is one of the lowest cost bullion dealers in the country.

Comments

  1. Many of you reading this know I am a ‘stacker’ and am pro-Silver and not a contrarian.  But I have to ask the question – WHAT IS GOING TO DRIVE SILVER PRICES HIGHER?  This recent bump above $30/oz can be attributed to the anticipation of, and the announcemen of QE3.

    This is what brought us the recent price increase.

    So, WHAT will drive the price of Silver from ~$35/oz up to $50/oz?

    • The fundamentals.

    • Fundamentals first yes, for the second bull run leg, and then, perhaps quite fast, perhaps quite longer-term (say 4-5 years) the mania sets in and everyone and their dog and granny wants to be in. That’s a sign that you might want to get out in a controlled way. I’m pretty sure that’s also how the JPMs and such view it.
       
      1 oz, 1 tulip, who cares. This presupposes that we don’t get any sort of Mad Max scenario, in which case I’d lean to holding on to your PMs and spending as little for as much as possible (barter that is).
       
      Just IMHO, tralalaaa… Cheers,
       
      R3K

    • One big driver will be COMEX unable to deliver.

    • MAMMOTH, old Buddy, that is a good question. 
      I think it will be the loss of control of the Cartel, to hold down the prices.
      Also, the realization that QE is not doing much at all…
      No one trusts the MSM anymore, at least anyone with any sense.
      Left, Right, objective or otherwise, if they ignore the elephant in the room
      I IGNORE THEM!!!

      Rush Limbaugh recently made comments that referenced the coming crash, but
      it was pretty much strictly tied to an Obama second term… Head still firmly buried in the sand…
      So the “formerly so-called alternative media” (squawk-radio) is showing its true colors, IMO.

      The only guy I have heard talk about the Crash is Mark Levin, for at least a year or 2 now.
      But he said it is 8 to 10 years away, until recently, and he put it in the 2013-14 time frame
      if we do not change our course, regardless of Obama’s re-election! His only “problem” is he
      does not like Ron Paul, almost strictly because of Foreign Policy…

      I’m sure there are others who speak of the coming crash, but they are rare AFAIK. 

  2. Unlike what Morgan said in the interview. I don’t think QE3 is priced into the market. It’s continuous printing until the say they are done. It’s unheard of 10 years ago and people are not going to be able to put a price tag on it.

    This still does nothing to help the European Debt Crisis and they are going to have to fire up their printing presses to keep up!

    • That’s the idea. Make ppl believe that diving into the abyss is better when we all hold hands. As if they won’t drown.
       
      I agree, it’s not really priced in because it can’t be priced in. 

  3. This continual printing could produce an economic environment that would continually push silver higher every month. The economic world has taken an extreme turn for the worse with QE3 to infinity. It is nothing less than cutting the tail of the monkey off an inch at a time. What the FED has done will prove to be a very slow and painful process that is already doomed to fail.

    • “What the FED has done will prove to be a very slow and painful process that is already doomed to fail.”

      In order to say that the Fed has failed or succeeded, you must know what their real agenda is.  Once you know that, you can say whether or not they have failed.  My view is that the Fed exists to protect the interests of its owners, such as the BIG NY banks and others.  Their primary goal is to wring maximum interest from everything that the US economy does and they are doing that in fine style.  This nonsense about a strong dollar and full employment is just a lot of hot air that is pumped out via the media to show that the Fed is “doing something” and that with enough spin applied to it, it is in our best interest.  That is such a steaming pile it does not even bear further comment.

    • I think that other than to give their parasitic board member banks something to chew on, they do believe (it’s a religion) that they should most of all fight deflation. Now what that means is their and their inbred pals’ ASSETS which are really LIABILITIES. That’s why they want to make it possible to grab as much real wealth from the small ppl before the musical chairs game stops.

  4. Morgan’s comment on silver moving towards parity with gold seem a lot like hype until we realize that he is not saying that it will ever achieve parity, only that it is moving in that direction.  OK, so the Silver / Gold ratio in ounces is moving downwards.  That is understandable given the fundamentals of these metals and the fact that silver is WAY more useful a metal than is gold.  I can easily see that silver prices would rise until they meet the current 9:1 ratio of silver produced to gold produced.  Lower than that, though, seems a very difficult challenge.  If by some quirk of fate, silver became priced the same as gold, why not just use gold in many of the processes that now use silver?  There sure is a lot more gold above ground than silver.

    Also, his comment on the Pascua mine is very interesting.  Wow!  20-40M ounces of silver from one mine, IF they can get it running correctly.  That seems like a LOT of silver…  maybe even enough to warp the market price of silver a bit… lower if it comes on-line and higher if it does not.
     

  5. I htink the mine that Morgan refers to is the one under the glacier.  The Argentinian government told the mining firm that they could not excavate as the glacier was the water source for farmers downstream.  The level of pollution would probably be pretty heavy. So until this is resolved in the supreme court of Argentina or someone gets serious payoff, the project is on hold.  A few hundred million was spent to date to work the site and the rumor is the Silver Wheaton was the royalty firm that bought the production and is owed $200,000,000.  My memory is not fresh on this but could involve paying SLW market price for the silver that would have been paid to Wheaton for their advance compensation of the mining costs.

  6. I don’t see any fundamental reasons why parity would be impossible. In a free market that is.
     
    Think about it, if as many $ are put into phyz Ag vs. Au. That’s a 1:1 on the monetary/investment side already. So, that leaves the industry. Which metal is far more used and needed and not or very difficultly substituted? It ain’t gold.

    Edit: for quite a few processes they might use palladium instead, but still the main point is there. If “investors” see it, industrials will eventually. Besides no one exactly knows their buying prices or even where they get the stuff. That might be a very interesting field for investigative ppl to delve into.

  7. Silver moving towards price (value) parity with gold is so ‘unthinkable’ that most people are repulsed by the mere thought of it.  However, there is nothing fundamentally or in the natural order of things that would prevent this from happening.
     
    A long time ago, people thought the Earth was flat, all of the while being round.  Years ago, people thought the US Dollar was ‘as good as gold’, all of the while being a fiat debt currency created out of thin air by a small group of ‘men’.  Right now, people think gold should be much more valuable and have a much higher price than silver, all of the while gold being much more abundant physically than silver above-ground for investment purposes.

  8. There is some normalcy bias involved in the gold-silver price relationship.  Gold has almost always been more expensive than silver.  At best, there was a 10-15:1 ratio of gold to silver value.  Could this change?  Yes, I believe that it could.  But will it?  Maybe. “Always in motion the future is… difficult to see clearly”.

  9. They said the same thing last time when silver was at about 50$ per ounce in 2011. How do they know that silver will go up at that price? “The only way you can predict the future is to create it”. The only and most accurate way that to know silver’s price in the future is to wait and see.

  10. A triple might be leaning hard, a double would be great!

  11. I think DM’s analysis is very good, I can see it going pretty much right in this track.
    BUT (and this is a big but) I cannot buy into this guy’s overall picture, because I have
    never heard him (or read) where he references manipulation, not once. He sometimes
    mentions events that most explain as manipulations, but instead cites the apparent
    underlying market factors that the Cartel would have you believe. Sometimes, these
    are there and a bit of short selling is done “undercover” of these factors, or the factors
    just needed a “nudge” of short selling to take hold, but with DM, he never seems to
    mention manipulation. I mentioned that in another post that had an audio interview.
    Very Odd.   

    • Except for a couple smashes below $30 
      Morgan is right on course… plus, I did read an extensive column to where he discussed Manip-Manop IN FULL! 
       
      U Go, DM!

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