The Morgan Report Blog

Crude Oil Slides to Multi Year Lows and What to Expect

 
Looking back to 2007 (seven years ago) we have seen the price of crude oil perform incredible price swings. No matter the time frame in which we observe price when an extreme price spike takes place due to news/event, statistics show that half if not all the event driven price spike will eventually be negated in the future.

The perfect example of this is the rubber band affect. If you pull an elastic band in one direction, eventually when it breaks or it’s released, the band will retrace back to the norm and then go in the opposite direction. You can see this on the chart from 2008 high of nearly $150 to the 2009 low of $40. Price then lost is momentum and has been somewhat range bound from 2011 – 2014 right in the middle at $95 per barrel.

Observing the price chart of oil below there are many technical indicators and patterns at play. The first important pattern to identify is the series of higher lows shown with the green trend line sloping upwards.

A rising trend line that has multiple pivot lows (bounces up the trend line) the price of oil creates what I call a perfect storm for waterfall type selloff. This is exactly what we have seen over the past 3 months.

Each time one of the pivot lows are breached, the stop loss orders are triggered for investors. This causes a flood of sell orders forcing price lower to fall below the next pivot low etc… This may look and sound easy to trade, but keep in mind this is a monthly chart, and short term traders are not trading this long term time frame. Only investors would be focusing on a move that would take months to a year to unfold.
The second key indicator to look at is the 61.8% Fibonacci retracement level. This level typically acts as a support level for a small bounce usually. Because the 61.8% level is also in alignment with a previous consolidation, and a pivot low, both which have been highlighted on the chart, I suspect a bounce around the $65 level should take place.

The final potential bottom could take place near the 2009 low. It is a long way away but anything is possible and what we think is most unlikely to happen is exactly what the market does sometimes.

Crude Oil Conclusion:

In short, I think what crude oil is doing is healthy and needed for several reasons. If I let my bias/option shine through, I feel the big oil and gas companies have been taking advantage of us with their ridiculously high gas prices over the last seven years.

The multi-billion dollar, cash rich corporations need a little wakeup call. And the hair cut in their share price should be great for investors. This allows them to build or re-enter new positions at a better price with a higher dividend yield.

I will be watching the hourly and daily charts for a bottoming/bounce formation in the next week. But any bounce could be short lived as sellers appear to be aggressive still.

Receive my personal trade alerts via email and SMS text alerts at www.TheGoldAndOilGuy.com with a 50% Black Friday Offer Today

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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Dramatic Increase in Gold Flows into China

 
Dramatic Increase in Gold Flows into China
by David H. Smith

For over two thousand years, China practiced what came to be known as the “tributary system,” reflecting the view that it alone was the center of the civilized world. All who wished to do business with the Chinese were considered tributary states. Rulers and travelers from other lands had to follow certain procedures, including gift giving, in order to associate or do business with them.

When Japan ignored this policy, it brought about two invasion attempts by the Mongols under Kublai Khan.

Now, that line of thinking has morphed into something quite interesting, which may one of these days come to be known as “The Great Gold and Silver Migration,” the transfer of massive amounts of true wealth – precious metals – from West to East.

Streams of Gold Flowing East, Emptying Western Vaults

In nature, a tributary is a smaller stream flowing into and feeding a larger stream or river. Around the globe, several “tributary trends” are coming together in order to feed the Chinese (and Indian) precious metals’ demand river, with major supply-side implications in the near to intermediate future.

The Chinese gold accumulation “river” has feeder supply streams from a variety of sources swelling its in-country gold tonnage. Quite a bit is imported legally through Hong Kong. Until this year, this statistical source was a reasonably accurate representation of publicly-accounted for gold coming into China.

However, Beijing and Shanghai are now ports of entry for a considerable volume of bullion, so annual import totals have become much more difficult to quantify.

For 2013, several sources have estimated total Chinese gold imports at 2,000 to 2,200 tons. If this was indeed the case, then it would be the equivalent of over 80% of global gold production for the year!

In an official Chinese Press Release about the China Gold Yearbook 2014, the Chinese Gold Congress (CGC) in Beijing stated that gold demand in 2013 was 2,199 tonnes, and 2014’s numbers continue apace.

China encourages its citizens to buy gold – jewelry, numismatic coins, or bullion. Another tactic – though extremely difficult to quantify – is the effort by Chinese business and government entities to purchase gold and silver properties for their future production capabilities.

Over the last few years, Bolivia, Argentina and Chile (also copper deposits) have seen considerable activity of this nature. Not long ago, China approached Barrick Gold about a partnership in its cost over-run plagued Pascua Lama project, a massive gold-silver property which straddles the Argentine-Chilean border.

Will Leased Gold from Central Bank Vaults Ever Be Returned?

In an interview with King World News, Dr. Keith Barron, the man who made one of the largest gold deposit discoveries of the last 25 years, had this to say:

“I believe that most of the Western world’s gold, which is supposed to be in central bank vaults, has been leased out. Much of it is now in private hands in India, and what remains continues going East to China and other Asian vaults. So most of the Western gold has vanished from the vaults, and it’s now just a book entry.”

One thing both precious metals’ bears and bulls agree upon is that for uncertain times, holding gold and silver can make a lot of sense. The saying that “silver can feed your family and gold will save your life” has the ring of truth – fully borne out by history.

But the larger rationale for holding precious metals is even better – when times are good and people have more disposable income, as literally hundreds of millions of “Chindians” are in the process of achieving right now – the buy-and-hold demand for precious metals looks destined to rise in a big way and continue doing so in the foreseeable future.

Below is a chart showing electricity production in India. This core measure of economic activity demonstrates a well-entrenched trend showing no signs of abating. Add the surprising election win earlier this year by reputed free-market advocate Narendra Modi as India’s new Prime Minister, and you have the ingredients for stronger economic growth, concomitant with continued robust domestic demand for gold and silver.

In closing, let me leave you with two more considered perspectives as to why gold and silver are destined to move much higher over time – the first, a position statement from Sprott Asset Management:

“We are gold investors because we have made a specific and calculated bet against paper money. Simply put, we are betting against paper money as a store of value. We believe its supply will continue to increase. We do not believe that the world’s major governments have any stake left in protecting it… Gold bull markets are unique in that buying becomes driven by both fear and greed. Gold is quickly moving into the hands of those who are unwilling to gamble on fiat currencies or bonds as a store a value. The new owners of gold are unconcerned with its lack of yield but instead are focused on its historic ability to preserve wealth and its unquestionable value.”

Second is this quote from Frank Giustra, one of Canada’s wealthiest and most successful businessmen. Though by his own admission, he has been a bit early in calling for a resumption of the upward move in the metals, he still maintains that “All the reasons gold went from $250 to $1,900 are still intact. In fact, they’ve been amplified ten¬fold.”

Buy the physical gold and silver you anticipate wanting to acquire in the future… Now!

David Smith is senior analyst for TheMorganReport.com and a regular contributor to MoneyMetals.com. For the last 15 years, he’s investigated precious metals mines and exploration sites all over Argentina, Chile, Mexico, China, Canada, and the U.S. and shared his findings and investment wisdom with readers, radio listeners, and audiences at North American investment conferences.

 

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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Metals Firm Up as Central Banks Nervously Eye Gold Vote

Now for more on what’s head for gold and silver and what suppressed prices are doing to the mine supply, let’s get right to this week’s exclusive…

Transcript:

Mike Gleason: I’m happy to welcome back our friend David Morgan of The Morgan Report and Silver-investor.com. David, good to talk with you again. How are you?

David Morgan: Mike, I’m great. Thanks for having me on the show.

Mike Gleason: Before we get into the meat of what I wanted to discuss with you today, please first give us your take on what you’re seeing in the market right now. What you make of the recent action, especially since we saw the big drop a couple of weeks ago. Are we nearing a floor? Do you anticipate testing the low $15 range in silver again? Basically, what’s your assessment here, David?

David Morgan: I see a lot of smart investors because the U.S. Mint has been inundated with orders and the Mint isn’t able to keep up with demand. That doesn’t mean there’s a shortage of silver. It means there’s a shortage of Silver Eagles because the demand’s greater than what they can supply currently. So that shows that at least some of the silver bulls haven’t given up. So that warms my heart so-to-speak. Secondly, I talked to some of the larger dealers, such as yourself, Mike, and there’s one that has both a retail and a wholesale side, which many of the bigger ones do. And they’re basically running out of product. Of course, they’ll lock in the prices, but this an outfit that a million dollar order was not a big event for them, and it is for a lot of mom and pop operations. So if someone came in with a million dollars and it cleared, they could walk out with a million dollars in silver, not a problem at all. A client of ours that we’ve dealt with over the years, dropped his membership for a while. He assessed the silver market, decided he wanted to get back in. Signed up and did a little quick consultation with me, and he went in to buy 6,500 ounces and he walked out of that place with 400 ounces, 61 100-ounce bars are due him and that’s not the normal scenario for that particular dealer. There’s nothing wrong with what I’m saying other than the supply’s just tighter than the price, Mike.

To answer your question fully, I expect a bounce here. I want to see what happens around the $17ish level and see if silver busts on through. If it busts on through it to the upside, then that means we’ve got a much stronger market than many of us anticipate. On the other hand if it stalls out and then falls, I expect the paper paradigm. The paper-pushers will push the price down the end of the year, like they have the few years in a row. But I also know there isn’t much $15.00 silver out there. There’s not much $16.00 silver out there and there’s probably not very much $17.00 silver out there. So my overall assessment is this won’t last much longer.

Mike Gleason: We’re certainly seeing supply tightness as well from the refineries and mints that we work with. A lot of it’s production bottlenecks, as you mentioned. There’s not necessarily silver shortages yet, but we are seeing some difficulty getting product timely.

We’ve seen prolonged period of suppressed prices in the metals for quite some time, especially for silver and that’s even before the recent take-down late last month and early this month. So I have to think this is going to have an effect on the mining industry about which you are an expert. What are you seeing out there? How long can we have prices at these levels and still have any sort of a mining industry?

David Morgan: Great question. Real answer is it depends on a case-by-case basis. In other words some companies have better cash positions than others and some have better margins than others. But the industries as a whole is not much longer. I would give you a WAG, I think everybody knows what a WAG stands for, probably like six more months. You have these kind of prices for six more months, continuous, I think you’d see a lot of these primary silver producers go on care and maintenance.

Mike Gleason: It does take a while for these mines to get back up to speed once higher prices do come about, and they want to get back into it, and it makes sense to do so, but it’s a switch that you can just flip and immediately start producing a lot of ounces again. It takes a while, right? There’s a lag.

David Morgan: Absolutely there’s a lag, and that’s why many people operate at a loss, because they have to do an overall economic assessment, and they have to determine are they willing to lose $4.00 for every ounce they produce, but yet the startup costs, if they go on care and maintenance is going to be X amount. It’s sort of like a break-even analysis. They have to determine how long can they lose money producing versus if they shut down and restart, what are the costs there. So it’s a trade-off study. So it’s not an easy answer to get to, but that’s why you’ll see people ask a common sense question. Well, why produce at a loss, just shut down? But it’s not like it’s a candy store or something, you can lock the door and the inventories going to be good for the next six months or whatever, and you come back in, turn the lights on, and you’re back in business. It’s not that way at all in the mining business.

Mike Gleason: I’m sure there are people out there that would point out that silver is mined primarily as a byproduct of other mining, so the price of silver doesn’t necessarily drive a lot of business decisions for these companies who account for most of the global silver production, but even if we’re talking about the silver-only producers, the 20 or 30% out there, what affect would it have if those companies bite the dust or shutdown? That’s not a huge amount of the overall production, but it would still be a major deal given the very small margin there is on the supply front, would it not?

David Morgan: Absolutely. All markets move at the margin. It’s the last bidder that gets the item at the auction, so it’s bid up and up and up, if it’s a desired item, an automobile, whatever. Whatever’s being bid for. And it’s the same in the free market, the little that we have left of these markets. But still, it moves up the margin, so every ounce that comes off the market makes the supply tighter and tighter, and you know, there’s not a lot of incentive for some of the base metal markets, either. I mean, zinc from the high is down 51%, lead from the high is down 47%, nickel is down 70% from the high, moly(bdenum) is down 73% from the high, and even copper, “Dr. Copper”, the overall best looking for what the industrial demand is globally, is off 34% from its high.

So all these markets, the ones I read primarily are contributors to the silver supply, lead, zinc, and copper, are off as well, so you know that a lot of those mines are not like putting out massive amounts. And then China looks like it’s in a state where they are not going to be leading the economy with huge demand in the base metals for a while. They have a lot of internal problems going on financially with the overbuilt housing or apartments, etc. So this is a set-up, where the cycle that goes too low and too high is in a too low position right now, Mike.

Mike Gleason: You have more of an ear to the ground than probably just about anyone, and you’re talking to these people all the time, and I know that you recently met with a number of the player’s in the business at the Silver Summit last month. How did that annual conference go this year, and what is the sentiment out there right now given the beaten down paper prices for gold and especially silver?

David Morgan: Well, it’s a great conference, but the attendance was definitely on the low side. The people that were there were realistic. I think a lot of them have conviction, companies included. I mean the investor side and the company side. We interviewed almost every company that attended, but the overall feedback that we received was that if it’s like this next year, they’re probably not going to come back to the Silver Summit. Meaning that the attendance on the investor side just wasn’t robust enough for them to justify spending the money that it takes to fly in, set up a booth, put people behind the table, and answer questions, that kind of thing. On the flip side, I had about three companies say this is an incredible audience. Everywhere we go, we get questions and that type of thing, but this is the most astute audience we ever get. They ask the most in depth questions, and keep drilling down more and more information that you don’t see anywhere else. So bright spot definitely for the Silver Summit, but again, attendance poor. I doubt that this is going on a whole lot longer. I think a few more months. I think 2015’s going to be better, but the market knows more than any of us, and I’ve said that more than once.

Mike Gleason: You mentioned to me offline that the smart companies can be real opportunistic at times like this and get some great value in the mining world. Talk about that.

David Morgan: Well, there’s one company that’s been on the list of The Morgan Report as a speculation for a variety of reasons, but it had an energy and a metal side, and we got interested in it for the overall undervaluation of the overall company, and basically what happened was the mining side or the vanilla side got spun off for free so our shareholders if they followed us in got a very, very nice project as a consequence of buying the main company. That same company has gone back to the metal side. They kind of broke off onto the energy side. Now, they are bought one of the best deals in the silver industry that I’ve seen in a very, very long time. And we at The Morgan Report have been invited down to do an analyst tour, and it looks like one of us will go for sure. It may be me, it’s most likely going to be David Smith and or Chris Markezay, and they will go, and of course, we do a little different than a lot of the newsletter writers. We do like a film expose on the trip so that the people that are members of The Morgan Report actually get to hit the play button on their computer and watch the interviews. You usually see what’s going on, and this is a very, very great project. Though I think most important thing I can is that like a good investor, this company is buying silver for pennies on the dollar, rather than trying to do something else. They see the opportunity to buy silver in the ground for literally pennies on the dollar. So this is going to be something that will be very lucrative, I think, for this company, and also balances the energy side, which I like much better. And I think it’s going to be something that our subscribers will be happy that they held on as long to the main company, because this is definitely going to add value to all the shareholders.

Mike Gleason: Switching gears here a little bit. There is a vote coming up that many in the precious metals and central banking worlds will be keeping a close eye on. I’m talking about the initiative on the ballot in Switzerland later this month, where they will vote on whether to require a 20% gold backing of the Swiss Franc. What are your thoughts there, what do you think will happen on that vote, and what ramifications do you think it could have, whether the vote is yes or no, and it’s looking like a real toss-up right now from what I’ve heard.

David Morgan: Well, my thoughts are what I commented. I mean, it was disheartening to me, to say it politely, when the Swiss caught the Keynesian disease so many years ago and sold of a lot of their gold and decided to do this neoclassic economics, the Keynesian model and just print wealth, which is impossible. You have to develop wealth, you can’t just print it. So now, to see them come full circle and come back to kind of their roots as a gold-backed type of situation, I think it’s great. That’s very personal feelings.

As far as will it pass or not, they say it’s a toss-up. If it passes, I think you’ll see the gold price go down almost immediately. The reason for that is to break the psychology of what just took place, because the paper paradigm is still strong by the central bankers that they will make sure that there’s lots of paper sales going on to look as if the referendum doesn’t mean anything for the price of gold, but that would be a temporary thing. Of course, you get a lot of mainstream news and mocking bird press saying “oh, the referendum passed, but gold was down four days in a row, blah, blah, blah, blah.” However, it would mean a great deal, psychological, because it would put to the world stage is that not only is gold important, but probably the best aligned to the gold community in Switzerland. And that would reverberate all through the Europe, and it would resound around the world, as well. So if it were to pass, you might get, though, as I said, something you might not expect. I’ve been in these markets for forty years. I’ve seen it time and time again, where common sense would tell you that the gold price would have to go up and such and such, and it doesn’t. And there’s a very clear reason for that, and it’s psychology. But again, in the longer term, it would be a psychological shift. It would be very, very positive to the gold community, and the world financial system at large.

Mike Gleason: Definitely give credit to the Swiss there for even making this choice available for its citizens. I have to think that one of these days, all the other nations are probably going to be forced to have a gold backing of their currency to restore confidence when things finally do tip and fall.

We’re nearing the end of 2014 here, a year that has not been good for metals investors. What are you looking for as we head down the home stretch, and then what do you expect for 2015 for gold and silver?

David Morgan: Well, I’m still optimistic. I mean, there is a possibility that we might, as I said earlier in the show, Mike, see you know, silver, see gold over the $1,200 level, and just keep going up, and silver breaking through the $17 level, and keep going up. I don’t rule that out. Used to be that we had a seasonality that the medals did really good near the end of the year every year, but that’s been broken the last three or four years, and I expect that’s probably going to be what happens again this year, but we have to wait and see to know for sure.

Moving beyond, the next month and a half, what we’re going to see is probably a pretty good shot in January. All the tax loss slowing and everything that takes place at the end of the year, it’s been such a poor year, as you said. You’re going to see the wash out, which I think we’re already seeing, or maybe it’s behind us, we don’t know, yet. And then it’s going to pretty good rebound in January, and I mean, it’s going to carry through. I look for 2015 to be a year where I thought we’d be this year. I thought we would see a shift where the global economy kind of wakes up to the fact that this recovery isn’t for real, and something’s got to be done. Like you said, Mike, this run to gold, however you want to term it, is going to start in a greater population base. In other words, more and more people will be waking up to it. But that didn’t happen in 2014, but I’m almost certain it will in 2015. These things can only go so long, and the pendulum can only swing so far one direction.

So I’m pretty positive about 2015. It won’t be hugely positive as far as running up against the old highs. I don’t see that happening in 2015. But I see this wash out completion, I see a new based being built, I see the massive selloff that took place at $26 silver and $1,500-ish gold being breached to the up side, and that becoming the floor again, which was before for both metals for so very long. And once that’s established, then we’ll have a psychological shift, and people that have been coyly watching the market and maybe got out or weren’t sure or were smart enough or lucky enough to get out and hold their cash for their metals for their portfolio will start to come back in. So I’m still very optimistic. I mean the basis for why you would buy precious metals haven’t changed. I mean fundamental facts remain the same and they’re stronger than they’ve ever been.

Mike Gleason: Yeah, I couldn’t agree more. 2015 being a good year would certainly be a welcome sight for precious metals investors, and yeah, I hope we get it. Well, excellent insights, David. Thanks as always, and we hope to catch up with you again real soon.

David Morgan: My pleasure, thank you.

Well, that will do it this week. Thanks again to David Morgan. Check back next week for our next Weekly Market Wrap podcast. Until then, this has been Mike Gleason with Money Metals Exchange. Thanks for listening, and have a great 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?

 

Join The Morgan Report Free for 30 Days *
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How to get Rich in Precious Metals Market

 
Do you have the courage to pick winners?

 

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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David Morgan – Greenspan, Gold & Silver in 2015

 
Latest video from David Morgan, the silver guru:

Prepare for the coming of the greatest transfer of wealth. www.silver123.net

 

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.
  

Metals Insider Shares Alarming News about Mine Supply in Exclusive Interview

 
Well, for more on the state of the gold and silver markets, and what a constricting mine supply and a hiatus from QE will mean for the metals, let’s get right to this week’s exclusive interview…

Exclusive interview with mining expert and metals market insider David Smith. We put the mining industry under a microscope and talk about how today’s sharply lower precious metals prices will impact mine production.

David makes a forecast about supply shortages that you really need to hear. Don’t miss my interview with David Smith.

Transcribe:

Mike: It is my privilege now to be joined by David Smith, senior analyst at The Morgan Report and regular contributor to MoneyMetals.com.

David, how are you today? Good to have you back.

David: I’m good Mike, how are you?

Mike: Real good. First off David, before we get to broader topics I wanted to get your take on what’s happening here in the precious metals markets. We’ve obviously taken out some pretty major support levels. So what do you see from here from a technical basis after the damage that’s been inflicted on the charts over the last week in particular?

David: Well, you’re right. Some support for gold and silver that was expected to hold was taken out. There are some levels of support below that, but sentiment seems to be the big driver now. Most of the newsletters that are out there writing are negative, so that’s putting downward pressure on. But what I find is really interesting is the volume of sales that people buying silver, American Silver Eagles and Canadian Maple Leafs; the volumes are just amazing. They’re also seeing a pretty heavy volume in Europe as well too, not to the mention the gold bullion coins. Kind of counter intuitive but it’s kind of interesting that people realize value when they see it I guess.

Mike: One of the largest wholesalers in our business is just not taking orders for Silver Eagles and Silver Maples right now. It’s really astounding. There’s going to be some real fireworks happening potentially. One of the main reasons I wanted to have you on this week is because you’re an expert on the mining sector and have dedicated much of your life to following that industry. We’ve got some real issues brewing here from a supply standpoint.

For instance, just last month one of the largest silver producers, First Majestic, announced that they would hold back a big portion of their third quarter production because spot silver prices are simply too low to make it worth their while to sell it. Their CEO Keith Neumeyer claims their cost of production is in the $15 to $16 an ounce range, but I’ve also seen other miners report higher all in production costs that are closer to $20.

What’s going to happen here? Will the mining companies follow the lead of First Majestic? Will they just stop production given these prices? Will they go out of business? What’s going to happen here with supply given these ridiculously low prices that are really just a result of all the paper market selling?

David: I think all of the above. It depends on the financial status of the particular company. You mentioned First Majestic, they withheld over 900,000 ounces from the market and they may withhold more. Not every company can withhold some of their production, because a lot of them are just trading dollars right not if that. A couple of other companies have done this a couple times before on a short term basis to get a better price and sometimes they’ve been able to sell for two or three dollars higher a few months down the line or a few weeks.

I think it would be very positive if some other companies took First Majestic’s lead and it wouldn’t surprise me if they did, because as you mentioned now just about all of them are selling at or below cost. Even some of the others that have kind of secondary silver supply coming from primary base metal production. I think in terms of the supply over the short term for people that want to buy silver the effect isn’t going to be too great.

What I’m concerned about is the intermediate to longer term with both silver and gold and especially gold, because I think that they are causing some systemic issues within the industry. Because as you probably know an awful lot of gold supply that comes in that is purchased as projects by the big gold miners; this comes from exploration companies from small companies that go out and take the risk and explore properties and drill a lot of holes and prove up a resource. Because the big companies they don’t do too much of that.

What these companies a lot of them going out of business, or basically having enough money to keep their quarterly filings but no drill holes, this is going to impact the ability of the big gold companies to replenish their supply. Don’t forget their mines are a wasting asset, their digging gold out of the ground, and each quarter there’s that much less gold in their project.

I think if we look at what’s happened over the last ten years with all of the high prices; we had gold from $300 to actually below $300 to $1,900, and there was only one major gold deposit discovered and the few intermediate sized ones. The biggest one that was discovered was nationalized by the country where it was discovered.

If all movement can only bring about a fairly small amount of new discovery, you have to wonder what the situation we have now is going to do where the money is tight for exploration. And where the few remaining of any companies that are around are not going to be able to fill the pipeline of the majors when they need to replenish their supplies.

Mike: You alluded to sentiment earlier there. You’re talking to the people in the mining industry. What are hearing? What are they telling you right now given what they’re seeing in this paper market?

David: I think all of them are tightening up their expenditures and some of them are closing unproductive mine shafts, and adits. Others are cutting overhead, that’s the responsible thing to do in any kind of environment. The big majors are selling off a lot of their assets, some of them are pretty good assets. Others are just not going to keep exploring them. You can’t just turn around and wrap these things back up when the price goes up.

Right now with the sentiment being really negative and a lot of it has to do with people that have been disheartened because the price has dropped to where it is now. But as you alluded to a lot of this is paper selling, it isn’t that the demand isn’t there, because the demand in many cases is higher than it’s been in the last couple of years. China and India continue to purchase large amounts of gold, both above and below the radar.

It’s really the paper market that’s the tail wagging the dog on this thing. That’s the thing where people deferring buying physical, they think they can spot the bottom, but oftentimes this like pouring liquid down a beaker and it comes up the other side just as fast. I don’t know if that’s what will happen, but it wouldn’t surprise me if it did. When you get down into the area like this now, people that want to add more or that haven’t take a position, I mean it’s certainly a price that makes a lot of sense to consider buying physical at this point.

Mike: How long do you think this supply/demand imbalance can continue before we get some sort of a pop and see higher prices to dry out the additional exploration and more supply, more scrap, what have you. How much longer do you think this can go on before we have to see something like that?

David: I think when the price turns around there’s going to be, not just the investors are going to doubt that those prices are going to hold up, but the actual producers themselves and the explorers. Just because silver goes up to $18 or $20 that doesn’t mean everybody is going to break out the champagne and start mapping out these big exploration projects. They want to see the price hold for a considerable time, so they’ll be a lag. No matter what happens to price, it will take a while for the investors and the producers and explorers to believe that this is real and it will be sustained.

Mike: Switching gears here a little bit, you’ve said before that the fear trade is what got you into gold and silver, but the love trade is what can make an investor rich. Explain your philosophy there, because you say that gold and silver can also be “good news metals” as well; talk about that.

David: It’s true, and Frank Holmes was probably the first one to popularize what you just mentioned about the fear and the love trade. Of course a lot of trade has to do with buying jewelry for your relatives and creating a dowry for your wife, especially in India, not your wife but I mean your daughter who’s going to get married at some point. The beauty of having gold jewelry and being able to give it as gifts and have it yourself; there’s a tremendous amount of demand for that and not just in Asia, but also here as well.

When the price gets down like this it really is appealing to people and you can see the volume go way up in the jewelry stores. Even if you’re not buying jewelry, if you’re buying an American Silver Eagle, or if you’re buying a Canadian Gold Maple Leaf, or a Gold Buffalo, American Gold Buffalo, these are beautiful, beautiful coins. They are pleasing to look at, to hold in your hand, and to have as a store value. They do both of those things. They’re not just something like you buy a fancy TV set or something. They’re actually true money in addition to having value for their beauty.

Mike: You’re colleague David Morgan has often quipped that markets can be irrational for a lot longer than you can stay solvent. I guess that’s speaking more specifically to those that are trading with leverage and in the futures market and so forth. Markets do act irrationally for a lot longer. You can reach these extreme oversold levels, just like we could reach an extremely overbought level on the other end of this that investors will be reaping the benefits of. Explain that, talk about that mindset, sort of give a little bit of advice I guess to folks who are feeling a little bit worn out right now.

David: David Morgan has often said that these markets will either wear you out or scare you out. Silver has usually bigger percentage moves in both directions than gold. Of course, now we’re seeing pretty good size moves in both of them. I think the thing for people to remember is that when markets are going down, especially when they’re going down in a sustained manner like this, you’re going to see, most of what you’re going to see is negative reporting. When they’re going up you’re going to find all sorts of reasons why they’re supposed to keep going up.

The only way to really come out really well in these things is to try to be a contrarian and when the market is really lopsided, when everybody’s on one side of boat, then that’s when you want to take the other side of the position. Especially if it fits into your financial circumstances and you’re plan, and you’re ability to handle risk in this sort of a thing. By the time just about everybody you talk to or read about is saying, “It’s time to buy gold and silver,” well a lot of that potential profit will be gone, because gold and silver will be much higher than where they are now.

Who knows if this is the bottom; prices could go lower. Nobody knows and the best in the business will tell you honestly that they didn’t know they were buying at or near the bottom until sometime after. I find it really works well, whether it’s buying mining stocks or the physical, to have people consider buying in tranches. If you were going to buy “X” amount at a certain price and you think it could fall further, buy half of that or one-third.

The thing is you’re taking action regardless of the size of your purchase, as opposed to trying to wait and then think you can time it. Because once it really starts up either you won’t believe that it’s going up, or it will go up quite a ways, and you’ll think well gee I could have bought it so much lower but I didn’t. But if you’ve been buying in increments, whether it’s a particular mining stock you’ve researched or the physical itself, you won’t feel like the train left the station without you on board.

Because you’re continually adding at better and better prices, in a logical, rational, calm manner and it really makes a whole difference in the perspective that a person has with market action when that’s going on. Because the market could be really moving in a big direction one way or the other and frothy, and you can be quite calm, and that’s what you want to try to achieve.

Mike: QE ended last week, which caused a big downdraft in the metals, and then coupling that with the GOP’s big victory on election Tuesday is maybe a bit of a one-two punch against precious metals. Is there a perception now that there’s going to be a newfound fiscal responsibility in Washington, an improved economy now that the Republicans controls both the House and Senate.

Is that going to be a drag on the metals going forward do you think? Is inflation no longer a concern at this point given the recent Fed announcement…a bit of a loaded question there, but what are thoughts on all that?

David: There may be a perception that things are really getting better, but you know the systemic problems have not even been addressed by either party. To think that there’s going to be a sea-change because of what’s going on, I think is overly optimistic if not downright naïve. Because we have about two years before the next Presidential election, we have a lot of legislators that are up for election in 2016 that weren’t now. Their primary focus is to get reelected and to get themselves committee chairmanships and things like that. I would be surprised if we see anything major that really solves any kind of a problem coming up any time soon.

The issues of overleveraged banks and other entities, and the tremendous debt that we’re carrying and the slowing economy globally, all of these things are going to be a drag on any kind of a big turnaround. When you look at the DOW having new record highs and how much of that money is actually coming from Fed stimulus money and from high frequency trading as opposed to individuals and large entities that are actually buying stock because they feel it represents value.

You can see that if you look at the metals right now, which is about as contrarian as you can get, to buy the DOW versus the metals it looks to me like a no brainer that you would want to be very, very careful buying the DOW and less careful buying the metals. Because you’re getting real value that over a really short period to intermediate time I think you’re going to be pretty happy you picked up some, rather than just trying to wait for the all clear to go.

Mike: I couldn’t agree more. Things seem to be teetering and maybe we are on the brink of some sort of a collapse and so forth. Very well put indeed. We always appreciate your thoughts and words of advice at times like this.

Before we go we want to urge our audience to check our David’s latest article on MoneyMetals.com. He wrote about how metals investors can learn a thing or two from the recent Ebola scare and makes some great comparisons there in a thought provoking article. We didn’t have time to talk about it here today, but folks should definitely check that out at MoneyMetals.com.

Well, David thanks again, enjoyed it as usually and we look forward to catching up with you real soon.

David: It’s been great to speak with you Mike and you have a great day.

That will do it for this week. Thanks again to David Smith. Check back next Friday for our next weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange. Thanks for listening and have a great 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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Why Precious Metals Bulls Are Like Ebola Fighters…

 
Why Precious Metals Bulls Are Like Ebola Fighters…
David H. Smith

Lately the Dow has been rising and falling hundreds of points in a day, bad news is coming from the Middle East, Europe is sliding into recession, and now we’ve got an Ebola scare!

What are precious metals’ holders, who have been watching the up, down and sideways moves in gold and silver – sometimes during a single day’s trading session – expected to do? How do we keep our balance and move forward with confidence in our precious metals’ “stacking” program, adding to our holdings on a regular or dollar-cost averaging basis?

The answer lies in becoming centered emotionally, reminding ourselves of the valid reasons why we originally decided to hold gold and silver. Reasons – which become more compelling by the week. And then taking action on the plans we made when things may have been a bit less hectic than they are now.

Even though the likelihood that large numbers of Americans will contract or even face exposure to the dreaded Ebola disease is remote, the news – repetitive, often exaggerated and misinformed – creates an emotional riptide that can be difficult to handle. But sometimes during a crisis, we run across a person who is able to remain surprisingly calm, focused and able to “doing the right thing” – while others around him (or her) are either in panic, disorganized, or simply find themselves in a “freeze state.”

This kind of person does not operate fearlessly. Rather, he takes a hold of the fear response warning us of possible danger that we naturally possess and controls it. Then he can turn this volatile emotional mix into productive energy for a smooth, sustained flow to calm those around him, providing clarity in a highly-charged fearful atmosphere. And he gets things done!

Such a person is Dr. Mohammed Sango, Director of the Redemption Hospital in Liberia. He was profiled recently in a video interview, which you might choose to view on Youtube. Simply type in “The Fight against Ebola.”

When asked how he was coping emotionally, Dr. Sango answered:

“I have to cope. I have to cope with the stress. I have to cope with the emotion. If not, I will be a victim of circumstances. If you think so much about the disease and become frightened, what you’re supposed to do to protect yourself, you cannot do it. You will not think… When the fear consumes you, then the disease equally consumes you. So you have to be alert at all times. No sleeping on the disease. No sleeping on your emotions.”

Interestingly, his “hospital” was at first only a free clinic/holding center. But when the patient load became overwhelming – with no medical care being provided to the growing numbers arriving daily, he and his staff turned the site into a treatment center, getting by with a limited but still beneficial amount of service and supplies.

Dr. Sango’s ability to spot a problem early on – in this case Ebola, before it became an epidemic – and the actions he took to help manage the local situation is what separates his response from that of so many others.

Dr. Sango’s “Gold Standard” of Behavior

Dr. Sango’s mindset, emotional control, clarity of thought – and just as importantly, his ability and willingness to take action – is the same “menu” of behaviors that you and I can follow, in order to help us stay the course with our precious metals acquisition program.

When the disconnects in our economic and political system that are becoming more obvious to others fully assert themselves during the weeks and months ahead, you’ll be glad you kept on accumulating gold, silver, platinum, and palladium. The risk of waiting, versus taking action becomes greater as time goes by.

For thousands of years, millions of people around the globe have done the same thing. And when things really got nasty, those who planned ahead in this way, had the financial means “in hand” as insurance to protect an important part of their personal wealth and even prosper, as many of those around them who failed to do so did not.

Richard Russell: “Subscribers should stay in silver and gold…”

Richard Russell, founder of Dow Theory Letters, the longest–running financial newsletter still being published, had this to say on October 15th,

“Is it a stumble, a correction or a primary bear market? There is absolutely no way of knowing at this point, but that shouldn’t bother me or my subscribers. We’re safely in the only two tangible currencies — silver and gold. As I write an hour before the close, the Dow is down over 300 points on increased volume. This is obviously a distribution day with institutions leaving the market.

“Investors’ first reaction today was to move into the dollar, but on second thought, investors realized that zero is the fate of all fiat currencies. On further thought, investors decided to move into the only tangible currencies which need no nation to back them. Of course I’m talking about silver and gold. A characteristic of bear markets is that they start each day with buying and end each day with selling.

“Subscribers should stay in physical silver and gold…”

I’d say this is excellent advice from the doyen of newsletter writers to his subscribers. And a top-drawer suggestion for your consideration as well.

David Smith is senior analyst for TheMorganReport.com and a regular contributor to MoneyMetals.com. For the last 15 years, he’s investigated precious metals mines and exploration sites all over Argentina, Chile, Mexico, China, Canada, and the U.S. and shared his findings and investment wisdom with readers, radio listeners, and audiences at North American investment conferences.

 

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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General Access, Investment Scoring and Timing Newsletter

 
General Access, Investment Scoring and Timing Newsletter

Silver Price Extremes!
November 6, 2014

To identify “buying opportunities” in “extreme” situations, we identify historical extreme situations and use them for a benchmark. Provided that a correction occurs in an active bull market, the insights from this kind of analysis can be very helpful.

Most should agree that the credit crisis was a major economic event that pushed nearly all assets down to an extreme low. We have used this kind of extraordinary market action as a comparison for the current commodities correction.

In the above chart we simply measured the percentage drop of the current correction and compared it to the extreme drop back in 2008. Based on this chart it is safe to say that the current correction could be considered extreme.

The above chart illustrates the two extreme corrections relative to the Down Jones Industrial Average. The above lines are a ratio of the silver price divided by the Dow Jones, and we can see that the drop since August 2011 has been much larger than 2008. Using the drop following July 2008 as a benchmark, it appears that selling stocks and buying silver at this time may be a great opportunity.

Here are some other 2008 versus 2011, Dow Jones Industrials comparisons:

In the above chart we can see many examples of the extreme correction since 2011. The current drop from top to bottom (2011-2014) even exceeds the Credit Crunch of 2008 & 2009. When silver hit a low of $8.88 in 2008, it then climbed over the next couple of years to an impressive price of $48.70. Using the past as a guide, it may make sense to sell some Dow Jones Industrial Average (Stocks) and buy some precious metals related investments.

 

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 REAL Reason Your Stockbroker Hates Gold…

 
The REAL Reason Your Stockbroker Hates Gold…
By Guy Christopher, MoneyMetals.com

Gold is a touchy subject on Wall Street. It has been ever since FDR drove Americans and their gold apart 80 years ago. Although gold bullion ownership has been legal in the U.S. since 1974, a relentless government campaign to dampen the gold price has left gold trailing in public popularity and perception.

Gold is money. No one knows that better than Wall Street. But it prefers to keep matters of gold to itself. Wall Street doesn’t want you owning gold or even thinking about gold, and treats you shabbily if you do.

As an individual investor, you will probably never come face to face with the masterminds on Wall Street. But you might meet a representative on Main Street, your local stockbroker. He adopts Wall Street’s disdain for gold, whether consciously or in response to institutional incentives for him to push financial products only.

To understand, we looked at how stockbrokers are trained and managed by their Wall Street employers. We spoke to several brokers and regular clients. The brokers insisted on anonymity, as you’ll see.

Stockbrokers Are Steeped in Establishment Thinking

Our hat is off to stockbrokers for the hard work it takes to earn that license. Their basic education revolves around a tough exam called the Series 7, considered by some as difficult as the bar exam. It’s a computer-generated, timed test of 250 questions lasting 7 hours, taken under government supervision. One study guide shows 8,000 possible test questions. No two exams are identical, which eliminates cheating.

The material covers regulations, laws and taxation involved in trading common securities like stocks, bonds, and mutual funds.

It also covers government-mandated “ethics” training, supposedly meant to protect clients and their money from unfair practices. That includes understanding diversification, which requires evaluating a client’s total assets, tolerance for risk, and ways of spreading risk around among many types of investments. One test for risk tolerance is whether the client can sleep at night with his broker’s recommendations.

The ethics rules also mean brokers are heavily regulated in what they can say or put in advertising to influence clients. One told us even the “Christmas cards to clients have to carry a disclaimer.”

Brokerage firms designate “compliance officers” to make sure the rules are followed. Brokers get surprise visits in person, and must open all records to inspection, including personal checkbooks. Even commenting for this article would have required a compliance officer’s approval, had we bothered to ask.

Brokers attend annual, mandatory continuing-education classes. But despite covering almost every aspect of investing and wealth known to mankind, nowhere in your stockbroker’s training, testing or continuing ed is there discussion of owning physical gold in your possession.

Mainstream Brokers Try to Steer You Away from Gold

Brokers must follow Wall Street’s lead. One told us, “I don’t like gold, but if I did, I couldn’t talk to you about it. I’d lose my license.” He added, “You’re not using names for this article, right?”

While they can recommend and sell plenty of paper gold (gold mining shares, mutual funds, etc.), brokers can’t sell physical gold. Also, they don’t actually know any more about gold than most Americans, which is very little. So, they rely on Wall Street’s mantra dismissing gold as a murky investment and will do their level best to talk you out of buying even a single ounce.

Wall Street’s vast public relations and advertising empire, known previously as America’s free press, gladly backs them up, spreading lies about gold and scorning gold owners.

The exceptions on Wall Street are the mega-players quoted as owning gold and believing in gold. We firmly believe some local stockbrokers are secretly gold and silver stackers, but could never say so.

We uncovered one brokerage’s secret to dealing with physical gold. When a valued client insisted on buying bullion, the brokerage quietly introduced the client to – a bullion dealer! Doing so satisfied the client (who would otherwise have lost confidence in the firm), and it kept the brokerage a long arm’s length from any heavily regulated discussions of gold.

Individual investors we spoke to revealed a lot about investing confidence among the public.

Most investors in securities are honest in admitting they don’t know exactly what their stock market dollars bought. “My investments are in an IRA” is too often the reply. Stock investors rely heavily on their advisers, telling us they need to believe their advisers have extensive knowledge of securities, which clients admit they themselves don’t have. They also express a need to believe their brokers have their best interests at heart, and many are satisfied.

Gold and silver investors see confidence differently. They trust self-confidence. Precious metals buyers have no massive financial machinery pared with a complicit media to champion gold and silver, except for free-market forces. Self-reliance emerges as a character trait for metals owners, who just don’t get a lot of hand holding.

Which brings us to perhaps the most important reason Wall Street hates gold.

Precious metals in your possession have no counterparties and no continuing fees and commissions, unlike the thousands of investments brokers sell. Once you own gold, that part of your wealth and your future is out of Wall Street’s hands.

Decades ago, Wall Street routinely recommended a gold allocation of 5% for any portfolio — a standard footnote to every financial analysis. Can you imagine the shock waves in markets today if a mere 5% of trillions of investment dollars suddenly went from stocks and bonds into physical gold and silver?

By pretending gold and silver are not legitimate stores of wealth, and by belittling those who own metals, Wall Street does a two-faced kabuki dance around its own ethics code of clear communication and client diversification. Wall Street and its complicit business media go against their own advice to diversify, revealing a fraudulent – dare we say inconvenient – tale of true wealth.

###
MoneyMetals.com columnist Guy Christopher is a veteran writer living on the Gulf Coast. A retired investigative journalist, published author, and former stockbroker, Christopher has taught college as an adjunct professor and is a veteran of the 101st Airborne in Vietnam.

Bo Polny: November Starts the Next Upcycle for Gold

 
Jim welcomes Bo Polny, a precious metals cycle specialist. Bo’s work indicates that the next upcycle in gold will begin in November. Through his work with numbers and cycles, Bo has forecasted a number of significant gold and silver tops and bottoms in the last three years. He believes that a parabolic move in gold is coming. Bo is a frequent speaker at metals and mining conferences around the world.

http://www.financialsensenewshour.com/broadcast/insider/fsn2014-1031-polny-20c8e4h.mp3

 

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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