The Morgan Report Blog

David Smith: “The Worm Is Turning” on the Dollar


Read the Transcription:

Mike: It is my privilege now to be joined by David Smith, Senior Analyst at The Morgan Report and regular contributor to ILB’s website. David, thanks for coming on again. How are you?

David: Very good, Mike. It’s good to speak with you again.

Mike: David, you’ve written a couple of really informative exclusive articles for us over the last couple of weeks that I want to talk with you about a little bit. First off, you penned a piece called the Petrodollar Spiral, highlighting the growing concerns surrounding the US dollar’s long-term status as the world’s reserve currency. I want to get to what’s happening today and how we may be losing our grip on having the privilege of being the world’s reserve currency, but first, just how did the US find itself in this envious position of owning the most sought after currency in the world?

David: At one point, it was envious, but now maybe not so much so, but going back to get to the roots of how we got to where we are today, you need to go back to the end of World War II where a monetary system was put together called the Bretton Woods System named after where it actually took place. The system obligated the participating countries to keep an exchange rate by tying their currencies to the US dollar. They would hold that dollar as the primary reserve currencies. Other countries could redeem those dollars for gold at a fixed price, which at that time was $35 an ounce.

Global commercial transactions were conducted largely in dollars and there were several through the US Banking System. What happened is that over time when you have a situation where you can actually print a lot of extra dollars and think you can get away with it, you will do so. That’s always been a tendency with any kind of a paper currency. The US thought that they could print a whole lot more dollars than they might have gold to back it up and they didn’t think that a lot of people would notice and that they would maybe even actually ask for so much gold to be redeemed for dollars that it could put them in a pinch, but that’s what happened.

So leading up into the late 60s and right up into 1971, the outflow of gold became so pronounced from the US coffers that finally in 1971, President Nixon put a stop to that in what they called “closing the gold window”. Really what it meant is that the dollars could no longer be converted into gold by foreign entities. When this happened, of course it was a pretty big shock and the currencies began to float in value, but the dollar was still a reserve currency, and it was no longer backed by gold.

About the same time, the US and Saudi Arabia decided that we would protect them if they would agree that future oil sales globally would be denominated in dollars. What this did was to give the dollar a new lease on life in terms of being a reserve currency. In fact, it gave it a tremendous shot in the arm. Any country that wanted to purchase oil and Saudi Arabia of course was one of the biggest entities selling it, would have to exchange their currencies for US dollars before they could do that.

These dollars are a little bit different than what you and I have in our pocket. They look the same, but they actually don’t circulate inside the country. They circulate globally. These dollars came to be called Petrodollars because of the relationship of the dollar and oil. What really happened there, in so many words, we exchanged the gold standard, which took place during Bretton Woods, for an oil standard. Again, the same thing started happening. The US started printing all these dollars, thinking that almost no matter how many they printed, that would still be okay.

What we’ve had over the last couple of decades is a fairly severe and sustained decrease in the value of those dollars. So far, it’s coming to people’s attention, but we haven’t had a big clamor outside the country to redeem those dollars and because it’s now starting to change and that’s what takes us up to where we are today, but it’s something that was a long time building and given that we made the same mistakes twice in a row, I don’t know if we’re going to get a third chance before we strike out.

Mike: Fast forwarding to the present, we are now having a growing movement among some key players internationally and many nations are starting to do major deals outside of the dollar. First off, why are we seeing this, meaning why are those other nations starting to ditch the dollar and what are the implications of the growing use of alternatives?

David: These different reasons intersect with each other. They’re political and social and economic. The main situation has to do with our disagreements with some of these other countries, such as Russia and China over geopolitics and to some extent over trade and over actually the value of the US dollar because it has been declining over time for the last couple of decades. They hold large amounts of our debt. They’ve bought our debt from us and we are then able to buy more things with them and keep inflation rate low inside the country and things like this.

The worm is starting to turn on this and with the rise of the so-called BRIC, which is an acronym for Brazil, Russia, India, and China, these countries are trying to worm their way out of using the dollar for all their transactions. Basically the Petro Dollar is coming under assault. China and Russia have concluded a couple of really big trade deals recently with regard to oil and natural gas. They are actually going to be exchanging the buying and selling of these products with their own currencies rather than with the US dollar. This is fairly significant.

Most of the people watching this are saying they’ll never be able to supplant the US dollar, but they don’t even have to supplant it. All they have to do is take it down a couple of pegs so that it’s only first among equals rather than having almost the playing field. This sort of thing is picking up pretty rapidly now with some of the geopolitical problems with Russia apparently set to invade Ukraine and with all the issues we’ve had with the European countries in regard to that and then the issues we’re having with re-militarization of China and this type of thing.

These issues are coming to a head and I really think the issues that we’ve seen here and in the Middle East, these three major areas of the world, are moving forward by years if not a decade the question of whether or not the US dollar can remain as a reserve currency. This is going to have profound implications all around the world if we start to see this change continue the way it’s been going and become more pronounced.

Mike: In terms of where the rubber meets the road so to speak, why should the average investor care about this and ultimately what should they be doing to protect themselves from a seemingly hopeless situation that is out of their personal control?

David: Probably most people in the country still don’t see it as a big problem. They haven’t looked into it too deeply and they’re involved with other things. Inflation is relatively low even though it’s much understated by the government, perhaps as much as two or three hundred percent because of the way they’ve changed the way in which it’s accounted for over the years, but it’s going to be a big change and the dollar now has been relatively strong the last few months, but still if you look at a 25-year chart, it still looks pretty sick.

If we start to see a change where less and less Petrodollars are being used for the trade globally, you’re going to have a lot of these dollars coming back to this country, which is going to create an inflationary situation. It’s going to cause interest rates to rise. It’s going to cause a change in the standard of living of all of us in this country, and it’s going to have profound effects and of course the question really I think it’s when not if, because the subtle change that’s been taking place is becoming more pronounced and it’s something that really could happen quite rapidly.

In other words, people think I’ll have five years to figure this out, but you know what? They might not. They might only have a very short time, maybe not enough time in order to make the changes that are necessary. I would suggest one of the biggest changes that they could make, if they’ve not already done so, would be to purchase physical precious metals, especially gold, silver, and to a slightly lesser extent, platinum and palladium because these metals are holding their value and they’ve been in a secular bull market for many years. They’ve been lower in price the last few years as a cyclical bear market, but that is looking like it’s going to be changing fairly rapidly.
If we see the dollar coming under more pressure, you could have a very quick movement upside in these metals, perhaps before people get a chance to really get what they like and not only that, that demand against the relatively increasing demand worldwide and decreasing supply could create some real issues about people getting what they want, let alone paying the price that they’d like to get for it.

Mike: Anyone who follows financial markets, especially gold and silver or currencies, know from history that things can move very, very quickly when they do finally move, so it will be interesting to see how it all plays out. Turning to this week’s column about some of the issues we’re seeing out there in the mining industry, one thing I really liked about your piece is the thorough explanation of what it takes to actually bring an ounce of gold or silver to the market. Even with all the advancements in technology, it’s becoming more and more costly to mine, isn’t it?

David: It really is, and you know, Mike, I’ve been to probably several dozen mining sites in many parts of the globe over the last 10 to 12 years or so, and even the more I learn about it, the more I realize just how really amazing it is that the amount of gold and silver that’s available where people can have a chance to hold some in their hand and put it away, if it’s anything close to what we have and it’s only due to the massive efforts on the part of these mines and miners around the world that we have anything at all because a lot of the gold and silver is hundreds if not thousands of feet below the ground.

Many of these deposits are in politically and socially unstable areas of the globe more and more so. Many of them are at high altitudes where there’s questionable amounts of water to an infrastructure to process them and the grades that these different companies have been mining have been going down over the last decade or so. If you look over the last 10, 20 years, the grades of gold ore have declined by about 50%. In other words, they’re getting half as much gold per ton on balance out of a ton of ore as they did a few years ago.
The cost for all the implications for doing that, the diesel fuel cost, the rubber tire cost, you name it, the taxing structure. Mexico had a recent big increase in taxing on all the miners. All of these things just make it more and more difficult and more unreliable to count on a certain amount of supply out there. It’s David Morgan’s view in The Morgan Report and it’s my view and all of us that are following this that there’s going to come in the relatively near future a collision between supply and demand.

When that happens, it’s going to be something that I think is going to be pretty impressive and you’re going to be a little on the depressed side if you’re sitting there waiting to buy some gold and silver and it turns out either not to be available to you or at much higher prices than we see today.

Mike: As you alluded to, there’s an environmental footprint that is inevitable in all mining activities and perhaps even more significant, a political impact. Unfortunately, there have been some recent accidents caused by carelessness, accidents that are going to have an impact on the industry as a whole and the production levels. Talk about what you’re seeing there.

David: There really are and I’ve been speaking and writing about this over the last few weeks. We had just a few weeks ago, there was a major spill in British Columbia and it came from a tailings pond which ruptured and broke and there’s still probably maybe a couple of billion gallons of semi-treated refuse from the mining process into a lake and several streams. It was really a high profile situation. I really don’t know exactly how toxic it was, but even if it wasn’t toxic at all because it is treated, to have that much sludge and whatnot being placed into streams and rivers is not a good thing for spawning fish or for people that live along these areas.
It was really bad timing on the part of this that had to happen because environmental groups are becoming more and more concerned about the mining process even though regulations today are much more strict than they were even five or ten years ago. Most of the places that we visit are very studious about trying to be the best possible stewards of the environment that they can, leaving a small footprint, which basically means leaving as little disruption as possible when they are mining. In fact, to open a mine today in most areas of the world, you have to post a bond of money that will enable you to restore that mine when you’re done.

If it’s 20 or 30 years out, that money is going to sit there so you have to take care of that. The restrictions are there, but no matter how many restrictions you have, you’re going to have accidents. There’s nothing that I can think of where humankind has been flawless in the execution of any kind of an activity. We balance out the risk and the possible danger that we saw there to the environment with the fact that as David Morgan has so famously said, “Everything that you and I eat, everything that you and I use is either grown or mined.”
If we’re going to have anything even close to a semblance of the modern life that we’ve come to depend on, we’re going to have to continue mining and the question is how can we do this in a way that leaves as small a footprint as possible and contains, but does not eliminate the risk, because you just can’t eliminate those.

Mike: I would think that given all of the scrutiny and hoops and costs that the mining industry now faces, we’re going to be seeing growing repercussions on production costs and thus the prices of metals. Is that fair to assume?

David: I think it’s almost a given. You’re going to see more restrictions. You’re going to see more players in making those decisions. There was a major decision in the Canadian Supreme Court just about a month ago giving the First Nations there, the indigenous people’s basically right of refusal on any development on their tribal lands or historic hunting grounds or any kind of mining activity if it didn’t meet their criteria.

This is one more lever that the mining companies exploration and production are going to have to make sure that they address successfully, not only to even develop a property which there’s already a couple of them have been put on hold indefinitely, but to continue operating where productions have already been going on. It’s just going to become more and more complicated, more problematic, and at The Morgan Report, we do annual analyses on what we think the amount of silver that’s going to be produced each year is going to be and we try to take all these factors into consideration.

The things like you and I are talking about are really, really almost impossible to quantify in any way out very far. You combine this situation with the declining ore grades and for example, Peru this year in the last six months is down 400,000 ounces in gold production from where they were at this time last year. That’s a pretty big dent. All of these things coming in really makes me become more and more concerned about just how much supply is going to be out there.

It does not take much of a tipping of demand from the players even in a couple of places in the world as David Morgan says, it’s the demand on the margin, to really turn things around quickly and catch people that have been waiting to think that they can figure when that’s going to be by surprise and leave them standing at the gate while the last train leaves without them.

Mike: The old adage about how shortages begat more shortages, that’s something that we certainly could see come to fruition at some point here. Well David, before we let you go, we’d be remiss if we didn’t get your take on what we’re looking at here in the metals markets for the rest of the year and as we start to look towards 2015, are we nearing the end of the consolidation period finally or will it be more of the same?

David: I think we’re in that end stage and it’s been discouraging for people watching this even though we’re in the slow part of the year now, we’re moving into the next month, which is usually traditionally the strongest month for gold and silver prices. I think you’re going to see a firming up and what the metals, especially silver, likes to do, people looks at the charts and it looks like it wants to go lower and it breaks support levels and then all of a sudden, it turns around and catches people off, surprising, you have the darn thing up a dollar or a dollar and a half a day on silver.

I think it’s setting up for something like that again. I can’t tell you that it’s going to be tomorrow or a couple of weeks from now, but I think it will surprise all of us when it happens. When that finally takes places, if it does it on large volume and we see the mining stocks continue to strengthen, which they have been holding their ground pretty well lately, then I think you’ll see that next leg going up and I think 2015 has the potential to be a very strong year in your metals. It will reward people that have had the patience either to hold on or to buy more and I think they will be rewarded for that kind of patience.

Mike: Great stuff as usual, David. Have a great weekend and we’ll catch up with you again real soon.

David: You too, Mike. It’s been great speaking with you.

Mike: For those who haven’t yet signed up for The Morgan Report, we have a special offer for our Market Wrap Podcast listeners, the ability to get a no-risk trial of The Morgan Report newsletter plus free silver. For any listener that signs up for one of these refundable subscriptions today, we will ship you a 1-ounce Silver Eagle. The information in The Morgan Report is quite literally second to none among anyone investing in or just thinking about investing in the precious metals sector. To take advantage of this special deal, please look below today’s podcast.

Before signing off, I want to encourage our listeners to keep their eyes peeled for a very important announcement from our company on Labor Day, Monday morning. That’s all I can say right now other than I want to emphasize that you don’t want to miss the news we plan to share with you.

Well that will do it for this week. Thanks again to David Smith. Check back next Friday for our next weekly Market Wrap Podcast. Thanks for listening and have a great holiday weekend everybody.

 

David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the Silver-Investor.com website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.

As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time! Where will you be when this happens?

 

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The “New” Silver Fix and the Powers That Be!

The “New” Silver Fix and the Powers That Be!
With Remarks On Texas Governor Rick Perry & Texas Gold!
Accompanied by a Warning to Jewelers!

Presented August 2014 by Charles Savoie

Effective mid-month August 2014, the old silver “fix” has been replaced by a new silver “fix,” run jointly by the CME Group, owner of the COMEX, and Thomson Reuters. But has anything of real substance changed? It certainly has not. The new “fix” was awarded by the LBMA, London Bullion Market Association, composed of neer-do-well entities including Barclays Bank, HSBC Bank, Goldman Sachs, JP Morgan Chase Bank, and additionally Bank of Nova Scotia, Credit Suisse, Deutsche Bank, Mitsui & Company, and Paris based Societe Generale. For 116 months I’ve routinely made details available about a unique organization known to few as “The Pilgrims Society.” Persons who haven’t become aware of this group can find details on Google search. If you especially want the monetary details relating to this group and precious metals, add my name to theirs in the search box or read “The Silver Stealers” documentary. Therefore, I won’t go into another basic explanation of The Pilgrims Society here. The ringleaders of the megabanks above have all had heavy representation in The Pilgrims Society. The rest have been and remain represented in interlocking groups such as the Trilateral Commission and the Bilderberg conferences—groups founded by Pilgrims Society members. I am not among the commentators you can read the fastest, because of the nature of these presentations, in depth examinations must be made to substantiate my claims. However, just to make reference to this alleged “new” silver fix, and how bogus it is, I offer this brief report. An oft repeated phrase most have heard, and which drives home how dismal this old world often is, has it that “the more things change, the more they remain the same.” We will not get into a long documentary such as “Who Controls The Gold Stealing New York Fed Bank,” released last February, but will let a few points suffice. This is a mere matter of a group of gangsters who tossed the ball to others in their racketeering organization. Mitsui Global Precious Metals, a Silver Users Association member, is a subsidiary of Mitsui & Company—a Trilateral Commission interest. The Mitsuis and the Rockefellers have been associates since before 1907 when the Japan Society was founded by Rockefeller-Vanderbilt liaison Lindsay Russell as another offshoot of The Pilgrims Society. The Japan Society in fact was forerunner to the Trilaterals, founded 66 years later, but represented an expansion into Britain and Europe, in response to Bilderberg not including Japanese industrialists and bankers. Meaning that Bilderberg is over-rated compared to the Trilaterals! However, they both sprang from this older organization which remains in the shadows.

It appears that HSBC, Scotia Mocatta, and Mitsui & Company are the London based ringleaders of the “new” silver fix, along with Thomson Reuters, corresponding to their USA associate the CME Group. Ever hear about a dog being “fixed?” There is the parallel here that those of us invested in silver producers are continually seeing our finances neutered, while shorts and industrial users are swarming all over the diamond beaches of the Southwest Atlantic African coasts in the 1890s, so to speak, loading up wheelbarrows full of gems. Will we ever see aggressive silver prices on a sustained basis? Yes. Will we have to be around for 969 years like Methuselah, to see it? Not 969 days from this point. When it transpires, look for Tiffany & Company to screech like someone being executed on the breaking wheel in Regensburg, Germany, in 1544.

The Rockefeller interests, an inner circle family well represented in The Pilgrims Society, are represented in the CME group by William P. Miller II, a CME board member who is associated with the Rockefeller Foundation. Other CME directors present “interesting” (meaning—shady) aspects, but for now mentioning Miller will do. As for Thomson Reuters, it traces to a 2008 merger. Reuters was founded in 1851 in London by a German immigrant, a man who became fully accepted by the British Royal family and English nobility—a community well known for sucking stunning quantities of silver out of China in exchange for opium, an addictive poison.

Reuters over the years has had ample representation in history’s most elite organization—The Pilgrims Society. Let’s just look at only two examples. I am known for long researches which have a role in scholarship but feel this one may be concise. From page 406 of the 1969 “International Year Book and Statesman’s Who’s Who” (Burke’s Peerage, London) —

Read the entire article here… http://bit.ly/VVzl97

 

David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the Silver-Investor.com website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.

As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time! Where will you be when this happens?

 

Join The Morgan Report Free for 30 Days *
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Mining Tribulations: A Bullish Gold and Silver Price Driver

Mining Tribulations: A Bullish Gold and Silver Price Driver
David H. Smith

Silver guru David Morgan states the truism that “everything we use in our modern-day lives is either grown or mined.” I think you’ll conclude that these two pursuits pretty much define what it takes to both survive and thrive here on Planet Earth.

And like anything else, it helps if during the growing and mining, we pay attention to how we do it – leaving a small footprint, so that future generations can also harvest resources and sustain themselves.

However, unfolding developments in the mining sector are igniting the rocket fuel under precious metals prices. I’m talking about the rising costs and risks of mining, and the supply-price spiral that will result.

Here’s why gold and silver you can hold in your hands is poised to shoot up in price…

The production of precious metals – as well as the base metals copper, lead, and zinc usually found in conjunction with them – presents a certain amount of environmental risk between the time they are dug out of the ground, to when they are sent to industrial applications, or end up in the palm of your hand.

Seldom found near the surface, gold and silver ore must be blasted, dug, and transferred out of narrow passageways, often hundreds, if not thousands of feet below the surface – then processed by one of two primary methods.

Mining Will Always Leave an Environmental and Political Footprint

Transported to a mill, the ore undergoes a crushing. A flotation circuit process separates the majority of the metals-containing deposit from the remaining rock, usually by chemical and aeration operations, yielding concentrate or “con.” This relatively dry, high-value powdery residue is trucked to a smelter and refined into “dore” bars of 60 – 80% purity. Finally, it goes on to specialized locations in order to achieve the .999 fine level associated with the bullion/legal tender coins, bars, and rounds of which you are probably familiar.

Another process – heap leaching – harvests metal from low-grade deposits, which requires the processing of a lot of rock. A ton of ore may need to be crushed to retrieve a fraction of an ounce of gold or a hundred grams of silver! The ore is stacked on lined pads and sprayed with chemicals, to “leach” the metal from the surrounding waste material. The ore for this is obtained either from open pits, or from previously-described underground mines.

The thick liquid tailings left after processing – with various levels of toxicity – are stored in “tailings ponds,” which over time may become solid earth.

In some hilly parts of Mexico with little flat ground, a hardened tailings pond may be covered over with earth and used as a soccer field! But in larger operations, these ponds can take many years – if ever – to fully dry out, since a large operation adds liquid reside day after day, year after year. If the pond walls are not built properly – or even if they are, but have become subject to shifting ground, a flash flood, or some other destabilizing event – they may leak or collapse.

This is what happened recently – once in British Columbia and a short time later in Mexico. In the B.C. case, over 1 billion gallons of treated water with questionable toxic levels, flooded into a nearby lake and surrounding streams. While it will take some time to measure the full effects, the negative impact on the public’s perception of mining and the risks it entails was immediate.

In Sonora State, Mexico, 1.4 million cubic feet of leached copper wastewater spilled into a nearby river, leading to local drinking water restrictions. Reportedly, Sonora State is responsible for fully 27% of the country’s metals production.

Political Backlash Jacks Up Costs of Building and Operating Mines

No matter how carefully a mining operation is conducted, accident risk cannot be removed from the equation. In other words, operational reality can only address threat-management and reduction, not threat elimination.

A mining operation we profiled recently in The Morgan Report (a newsletter to which you may obtain a trial subscription, including a free U.S. Silver Eagle!) builds, leases, and also uses man-portable drilling platforms which create almost no disturbance to the ground cover – i.e. cutting down trees, building roads, digging ditches, etc. When their work is finished, the crews restore the ground used to its natural state. Soap-like lubricants used with the drills are bio-gradable, leaving virtually no toxins behind.

The company operating Canada’s only primary silver mine was initially formed as an environmental rehab business. It only later produced silver, from some of the highest grades/ton ore to be found just about anywhere. Their separate company removes and processes large quantities of toxic zinc residue left over from previous decades of silver mining when regulations were much less strict – in some cases nonexistent – compared to what they are today.

Writing in Sprott’s Thoughts, Steve Todoruk observes that mining companies, like airlines, cannot give guarantees. Being a realist, he notes:

It’s likely that accidents like this will happen again. Despite the risk, the mining industry will continue, because people need metals like copper in order to enjoy access to electricity for their homes and offices, to computers, cars, air conditioners, and other modern comforts.

It’s almost assured that mining operations are going to be held to even more stringent operational standards. These requirements will cost more, take longer to implement, and greatly raise the financial bar for exploration companies hoping to find more increasingly-elusive new deposits.

And you can bet your bottom (paper) dollar that all the metals – especially gold and silver, are going to be more costly and harder to come by as mining production costs ratchet ever upward.

Got Gold? Got Silver?

Would you like to comment on this article? If so, go here now.

 

David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the Silver-Investor.com website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.

As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time! Where will you be when this happens?

 

Join The Morgan Report Free for 30 Days *
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Gold, Silver and the bottoming process for the sector. (David Morgan)



 

David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the Silver-Investor.com website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.

As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time! Where will you be when this happens?

 

Join The Morgan Report Free for 30 Days *
* 30 Day Trial applies to new user sign ups only!
Offer does not apply to Premium Memberships.
  

Palladium demand and mines shutting down



 

David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the Silver-Investor.com website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.

As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time! Where will you be when this happens?

 

Join The Morgan Report Free for 30 Days *
* 30 Day Trial applies to new user sign ups only!
Offer does not apply to Premium Memberships.
  

An Under Appreciated Gold/Silver Price Driver: The Mining Footprint



Precious metals expect a bright Autumn.

 

David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the Silver-Investor.com website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.

As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time! Where will you be when this happens?

 

Join The Morgan Report Free for 30 Days *
* 30 Day Trial applies to new user sign ups only!
Offer does not apply to Premium Memberships.
  

Gold and Oil on the Verge of Something Big – Hero’s Rarely Win



Gold and Oil on the Verge of Something Big – Hero’s Rarely Win

Everyone has been calling for a bottoming Gold the last year. But the fact is that gold and gold stocks are still clearly in a bear market. Just look at the 200 day moving averages. The previous trends were down and prices have been moving sideways for the past year.

A lot of newsletter and analysts are calling a bottom. Technically it’s just a consolidation pattern. Consolidation patterns are a continuation pattern, meaning if the previous trend was down, which it was from 2011 till now, the odds favor price will continue lower after this consolidation.

If this consolidation does happen to be the bottom then we can classify it as a stage I base. Gold and gold stocks will start a new bull market, but price needs to break to the upside of this consolidation pattern. Until it breaks to the upside, it is still in a down trend.

Gold topped out over three years ago. And I am in no rush to try to pick a bottom and be a hero here. I’m just going to continue waiting on the sidelines until price confirms either a new bull market has started or for price to breakdown and we get another leg lower.

Oil Outlook

Taking a look at the big picture of crude oil the chart looks bearish. It too has been trading in a range since 2011 and the price is nearing the apex of a consolidation pattern.

It’s important to know that a pennant formation which is what crude oil has formed are the most predictable when price breaks out of the pattern within the first 1/3rd of the formation.

The longer price consolidates and gets squeezed into the narrowing apex of the pennant pattern, the more unreliable. The trend breakout will be, and it becomes at best a 50/50 bet.

Crude oil’s previous trend was up, but it’s been consolidating for such a long time that price is now squeezed into the apex. This negates that bias for the previous trend to hold true so we have no idea which why it will breakout but when it does expect an explosive move.

A breakdown in crude oil will send price to the $70 or $75 per barrel range, and that will hammer on the Canadian dollar also. I can see $1 USD being equivalent to $1.20 Canadian in a year.

My Gold and Oil Conclusion

Looking at the US dollar, it has been rising partly due to the euro falling. This strong dollar will put a downward pressure on commodities overall.

Gold and oil have not been that exciting for investors since 2011 when they topped out, but both are setting up for massive moves that should last month, if not year or more. Once these new trends emerge expect to see them in the headline news every hour.

It does not matter which way these commodities breakout of the consolidation patterns. With the dollar continuing to rise and the bearish chart patterns for both gold and oil there is a good chance much lower prices are ahead.

This will catch most investor’s off guard. It’s human nature to try to predict tops and bottoms in the market. But this is why most investors get caught on the wrong side of the market. The market always has a way of catching the majority of people on the wrong side of a position.

I am happily sitting in cash with some of my investment capital waiting for gold and oil to breakout of these large patterns. I would not be surprised if we see $900 gold, gold stocks like the gold bugs index $HUI to be at $150, and $70 per barrel for crude oil. I am not saying this is what I want, but you should be mentally prepared so you can get back into cash position and so you can take advantage of falling prices with me.

Big money will be made on the next price movements in these commodities. Whether we have to go long the market or short sell the market. Either way, we can make money. So don’t be a hero and try to pick a top or bottom, just wait for confirmed breakout then invest with the trend.

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Charting our way to financial freedom,

Chris Vermeulen

 

David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the Silver-Investor.com website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.

As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time! Where will you be when this happens?

 

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Building your Position during the Precious Metals’ Grind

Building your Position during the Precious Metals’ Grind
by David Smith

Jim Goddard: My guest is David Smith, Senior Analyst for The Morgan Report which you can find online at Silver-Investor.com. Welcome to the show David.

David Smith: Good to be back, Jim.

Jim Goddard: Metals right now are not really going up or down much. How can we deal with that psychologically and investment-wise?

David Smith: I call it the “precious metals’ grind”. It has been going on for several months. If you think of what happens when you’re grinding flour, it gets finer and finer. This grinds down people’s resistance, wears down the bulls, and enlivens the bears.

But if you believe that the support we’ve seen building over the last year is going to hold below where we are now, then you relax and just kind of keep an eye on things. If you haven’t added everything you want, you buy into weakness, something we’ve talked about many, many times on this show. You keep a little bit back in case the price to punch down through that support. If you believe that it’s a short term drop, then you do your buy at stupid cheap prices.

Jim Goddard: I noticed the decliners on the equity markets today. A number of them are gold mining companies. Not down a lot but all down consistently just a little bit. Is this a good time to perhaps take a look at those stocks?

David Smith: It’s interesting to see how the companies decline in price in relationship with the gold price. Lately what has been happening when gold has dropped, but the companies have dropped by a smaller amount relative to the physical. In other words, they kept their relative strength and that seems to be the trend going on now.

When you only concentrate on daily or even the weekly prices, you get a picture that may or may not be congruent with the longer term. So I looked at silver, which looks rather weak on the daily. The weekly doesn’t look too good either, but you keep going out and finally go to the monthly, the yearly and the five-year. What was interesting was when I got to the 25-year, I could see how this support between $26 and just above $18 that we’ve had – during the last three years of this decline in the cyclical bear market-how that’s still been holding.

In fact we’re a dollar and a half above those lows right now. So it’s still a sideways pattern. It’s not predictable right now, but the longer it takes to chew down into that support and the less successful the effort becomes, the more likely it is that we’ve seen the cyclical (and secular) lows and that you can have a very robust bounce out of that area.

Jim, next I studied the 25-year chart even more closely, and looked at what happened back in 2008 where silver had gone up to about $22. It had broken above the $10 mark in 2006 two years before, and had risen a little bit more than a double. But when we had the collapse in 2008, it gave up all those gains and pushed down to $9. A chartist looking at the monthly or even the two-year chart would say oh, the bull market is over, it’s broken through all the support. It took two years to rise, and now it has given it all back, plus more!

But then what happened afterward if you’re looking at the 25-year chart, is that nine was essentially the low. Thereafter, from 2000 – early 2009 up to 2011, a period of about 2.5 years – silver rose to $50!

So silver went up 500 percent. That could not have been predicted by looking at the short term chart. But it would have been given an indication if you looked at the longer chart when silver broke above the $22 high. Again, that was a technical indication that it was going to move a lot higher.

So looking at a long term chart can really smooth things out. It can never predict for sure where things are going, but it can give a solid indication as to where the price has been, and what might happen again under similar circumstances.

Jim: David, have some people taken money that perhaps they would have invested in gold and silver, and have put it into palladium, which has done very well this year?

David: It’s difficult to quantify that but I’m sure some of that has been taking place, and to a good effect. There are a couple of PGM ETFs which have been holding up well. There aren’t very many mining stocks you can play the PGM story, except for a very few exploration stocks with long development lead times. And there are a couple of producers. We’ve talked before about the primary North American producer, which has done well.

If you look at today with gold and silver soft, platinum and palladium have given back some gains too. But they’re still holding that relative strength. There are so many reasons to be bullish platinum and palladium that it seems to me, when you get a chance to buy a bit more stock, it makes a lot of sense in my book.

Jim: A lot of average investors had no idea about palladium. Even though it has made some major gains, they’re still surprised when I mention it to them that this is still a hot metal, because the much less expensive palladium is interchangeable with platinum in a number of catalytic converter uses.

David: Well, there are certain types of engines where palladium offers a better fit. They are interchangeable to some extent. I’ve read something last week which I haven’t seen further information on but that was pretty exciting to me. There was talk about a new type of catalytic converter, which by using more platinum – up to one ounce or even more per engine – which is a lot of platinum, will take all of the carbon monoxide away, leaving virtually no toxic emission from the operation of the engine and turning it into water droplets.

I’m sure they will get that down below one ounce over time. That’s pretty darn interesting. It would open up a new avenue for increased platinum usage. When you look at some of the toxic levels – just yesterday I read that at certain times of the year, London actually has more air pollution than Beijing, which as you know is one of the most polluted cities on earth.

All the big cities, to a greater or lesser extent, are facing the need to clean up their act so to speak. Clean up the air, because so many people are affected by the pollution, which causes many premature deaths.

I think PGMs are going to be used as an important facet of doing that, almost regardless of where their price goes because of this – you do a cost-benefit analysis and find oh, platinum is up 50 percent and palladium doubles. The benefit of doing whatever it takes in terms of their use to clean up the engines that are being used in these large cities is still worth it.

Jim: Where is platinum trading today?

David: We’re still in that same broad range we saw when you and I were talking about the breakout that occurred about six weeks ago -so still trading in a box formation.

Jim: I’m not surprised they said the air pollution in London can be worse than Beijing. The last time I came back from London – I hate to be gross folks, but I was still coughing up black chunks two weeks later.

The sky was the same color as the Thames, which you know is a nice chocolate brown color. The air quality there was not the best. Ironically some people are moving from Beijing to London because they think the air in London is better.

David: It looks like platinum and palladium are going to come in to help save the day. Good to be talking with you today on this Jim. We will see where things lead. Very interesting, methinks.

Jim: Thanks a lot David. My guest has been David Smith, Senior Analyst for The Morgan Report which you can find online at Silver-Investor.com. You’re listening to HoweStreet.com Radio. You can find us on Twitter, @TalkDigitalNet. Comments can be sent to info@HoweStreet.com. I’m Jim Goddard.

[Comments made on HoweStreet.com Radio are an expression of opinion only and should not be construed in any matter whatsoever as recommendations to buy or sell any financial instrument at any time. Available online at TalkDigitalNetwork.com. HoweStreet.com Radio is a production of Howe Street Media, Incorporated.

 

David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the Silver-Investor.com website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.

As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time! Where will you be when this happens?

 

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Offer does not apply to Premium Memberships.
  

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A Weakening Petrodollar Impacts Your Finances

Over the past few years, a sea change in international finance has been underway which will impact your pocketbook in a big way. Little noticed at first, it is becoming more obvious (and dangerous) with each passing month.

Western banking interests avoid the awkward topic when they speak publicly, but privately they speak of it in guarded tones. Most Americans ignore the issue, assuming that because it seems to be taking place “over there,” we don’t need to pay attention. That attitude is about to change…

I am referring to the unfolding peril posed by the decline of the petrodollar.

Let’s take a brief look at the history leading to the petrodollar’s formation and how it came to play such a pivotal role in today’s world – for better, and now – for worse.

The Bretton Woods system, set up near the end of WWII, obliged participating countries to keep an exchange rate by tying their currencies to the U.S. dollar. The dollar became the primary reserve currency. Global commercial transactions were conducted in dollars and settled through the U.S. banking system. Other countries could redeem their dollars for gold at a fixed price of $35/ounce.

Over time, U.S. government officials began to see that strong foreign demand for their currency meant they could print more dollars (run deficits) than they had gold to back up those dollars. Soon, foreigners caught on too. Losing confidence in the dollar’s value, they began demanding gold in exchange.

The gold outflow became so pronounced that in 1971, President Nixon closed “the gold window,” ending dollar/gold convertibility. Other currencies began to float in value, but the dollar (now a fiat currency since it was no longer backed by gold) remained a reserve currency.

With the dollar set adrift from its golden moorings, Nixon’s Secretary of State Henry Kissinger hastened to persuade the House of Saud to price Middle Eastern oil sales in dollars going forward. (In return, the U.S. would provide the Saudi princes with military backing if needed.) Thereon, any country wishing to purchase oil would have to exchange their currency for dollars beforehand and, for practical purposes, would need to hold large piles of U.S. dollars in reserve. These dollars, which do not circulate inside the U.S. and are not considered part of our domestic monetary supply, came to be known as petrodollars.

The effect of this was to exchange a de jure gold standard for a de facto oil standard.

It’s now 2014, and the U.S. has massively expanded it its currency base, much of it held in debt instruments by foreigners. We export some of our inflation, weakening the value (purchasing power) of the petrodollar. That causes foreign interests to doubt the wisdom of holding so much of an untrustworthy asset.

Add to this the rise of the BRICs (a coalition of Brazil, Russia, India and China), who actively question the wisdom of relying solely on the U.S. dollar, and who now use their own currencies in transactions whenever possible. Finally, throw in a large dose of geopolitical conflict, Middle East brushfire warfare, and continued NSA spying around the globe.

Add it all up and you’ve got the petrodollar sitting perilously on its perch, in a position likely – at the very least – to be knocked down a peg or two.

The trend towards owning fewer U.S. dollars (and dollar equivalents like T-Bonds and Bills) is well underway around the globe. Dollars no longer form the exclusive basis for international lending. Dollars are being used less to purchase American-produced goods, most notably from China.

Holding fully 75% of its foreign exchange reserves in dollars in 2002, China is now down below 54% — and falling.

A Weakening Petrodollar Impacts Your Finances

This changing environment will affect you. And you should consider owning gold and silver because of it…

Though most observers feel that the petrodollar won’t totally collapse in the near future, Jim Rickards, in his new book The Death of Money, believes that such an event is a distinct possibility. Even if the U.S. dollar only weakens enough to be ranked as “first among equals” – this would still be a major change, with huge implications for the rate of inflation, your purchasing power – and for the price of gold and silver.

According to calculations by the Bureau of Labor Statistics, the dollar has lost over 80% of its purchasing power since 1973. In other words, what cost you a dollar to buy in 1973 now costs you $5. In just the last 10 years, the U.S. dollar’s purchasing power has lost 30%. During that time, gold has risen 400%. Are you willing to bet this trend won’t continue?

Compliments of the U.S. dollar’s reserve currency status, we have been able to live wildly beyond our means – taking for granted our position as top dog. Like the diner who gets a poor meal at a once well-respected restaurant and stops going back, our profligate monetary policies are creating more and more dissatisfied customers. The time when America could run up debts in excess of 100% of its GDP – which is currently the case – is a chapter that’s rapidly coming to a close.

Whether the dollar dies a slow death over a number of years, or one day just falls off a cliff as foreigners desert it en masse, the effects on largely unsuspecting Americans will be severe and long-lasting.

Sam Zell, chairman of Tribune Company and Equity Group Investments, and one of the nation’s most prescient and astute investors, issued this warning:

My single biggest financial concern is the loss of the dollar as the reserve currency. I can’t imagine anything more disastrous to our country. I think you could see a 25 percent reduction in the standard of living in this country if the U.S. dollar was no longer the world’s reserve currency. That’s how valuable it is.

David Smith

 

David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the Silver-Investor.com website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.

As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time! Where will you be when this happens?

 

Join The Morgan Report Free for 30 Days *
* 30 Day Trial applies to new user sign ups only!
Offer does not apply to Premium Memberships.
  

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