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David Morgan, editor of the
Silver Investor, gave silberinfo, the first German speaking investor
newsletter and online information platform about silver, the following
exclusive interview.
“Five years ago,
Mr. Morgan put his life long study of free-market economics to work
researching precious metals, especially silver. Although very familiar with
gold, Mr. Morgan believed that silver needed more exposure and would be
utilized increasingly as technology continued to demand more and more of the
metal. Mr. Morgan's interest in silver led him to publish the
Silver-Investor, a research report that has grown in popularity and is today
seen as one of the pre-eminent reports on silver in the financial industry.
Mr. Morgan has benefited from the bull market in commodities and metals: An
overwhelming number of the companies outlined in his model portfolio has
higher stock prices than at the time of the original recommendation - some up
over 1,000% as of November, 2003.”
www.silver-investor.com
silberinfo:
Mr Morgan, kindly
brief us about your project www.silver-investor.com
Do you have a
“normal” job currently besides your website and newsletter or do
you put all your efforts for your readership? Are you the sole editor of
silver-investor.com?
David Morgan
My entire time is
devoted to my work at the www.silver-investor.com website and
publishing my monthly Morgan Reports. I do give lectures and speeches at
investment conferences and consult. This is a full time job, I have very
little time for anything else. All my efforts are devoted to my readership.
silberinfo:
If the gold price
will rise sustainable in the upcoming years, why might silver rise more
strongly?
When do you expect
silver to start rising sustainably stronger than gold? How could an investor
get a “buy signal” for silver against gold? Where do you see the
Gold-Silver-Price-Ratio in the next years?
David Morgan
Silver has already
outperformed gold from the middle of 2003, I recently wrote about this on my
website. The best buy signal was when most precious metals investors were gold
centric when the gold/silver ratio was around 80. At that time I announced at
the Vancouver
gold show, that investors should consider switching their gold holdings to
silver to reap the rewards, as silver would outperform gold. There are
certain aspects to use to trade the gold silver spread, it involves channel
analysis and is really outside the scope of what I can answer here. I do expect the ratio to narrow
considerably and do think we could see a 16 to 1 ratio, or even a ten to one
ratio at the top of the market.
silberinfo:
Barely no other
subject is being debated more among silverbugs worldwide as the potential
emmission of a Silver ETF by Barclays Global Investors. What is your opinion
about it? Do you think it will be launched or not?
David Morgan
I do think it will be
launched, but doubt very much it will have total silver backing. If you study
the true structure of the gold ETF it is apparent that there is not total
coverage, I think the silver ETF will be structured in a similar manner.
silberinfo:
If the Silver ETF is being
launched, how do you assess the role of J.P. Morgan?
David Morgan
Good name don’t
you think? Seriously, Morgan is at the top of the derivates heap, so I have
little doubt that the paper pushers to divert funds from moving into real
silver could use the ETF.
silberinfo:
Our friend Ted Butler believes
that no matter if the Silver ETF will be launched or not, it is still a
positive news as silver is being talked about. What is your view?
David Morgan
I agree because
anything that brings more awareness to silver as an investment/speculation
will help the market.
silberinfo:
Do you see chances
for the remonetization of silver in Mexico? Why could the idea of a
backed Mexican currency being blocked by the central bank or government?
David Morgan
I see the chances as
very small, but we are following the progress closely. The money center banks
in any jurisdiction do not want to give up their monopoly, and therefore
oppose any asset-based currency. This is true on a worldwide basis, with the
possible exception of the gold Dinar.
silberinfo:
The recently published World
Silver Survey stated a significant increase in the production and industrial
demand of silver. Do you think that this trend will continue?
David Morgan
There should be more
production but it is starting to taper off, this will change possibly in
2007-20008 when two large silver mines are scheduled to become operational.
The trend for more uses for silver will continue unabated, the question is
will investment demand pick up further or not?
silberinfo:
In light of the high prices of
copper and increasing prices for lead and zinc one can count on an expansion
of production of these base metals. This how more silver as a byproduct of
these base metals is likely to be mined. Could it be that the
supply-demand-deficit will be closed in the next few years because of this
increase in the secondary silver production?
David Morgan
By product production
is unlikely to close the gap completely, but as stated earlier if/when San Cristobal and
Pascua Lama opening might be enough along with all by-product mining to bring
the market into equilibrium.
silberinfo:
What do you think is the reason
why the decade-long production deficit has not lead to sustainable higher
silver prices? Or put differently: What do you think of the
“manipulation theory”?
David Morgan
The silver price is
set in the Futures Market, and this simply does not reflect the fundamental
picture accurately. The inflation adjusted price of silver is higher these
past few years, and therefore the price will continue upward regardless of
how the price is set. Once the reality of the physical supply is noted by the
marketplace then we could witness large moves in the silver market.
silberinfo:
What do you think about the work
of the World Gold Council?
David Morgan
It is always easy to
be critical of others, but my opinion for what it is worth would be both the
Gold Council should put more effort into gold investment and less effort into
marketing gold jewelry.
silberinfo:
What do you think about the work
of GATA (www.gata.org) - the
organization fighting for free markets?
David Morgan
I am in favor of true Free
Markets, not just the title, and think that GATA has lead the charge to
waking people up to the real facts regarding all of the financial markets. I
have contributed to GATA personally.
silberinfo:
Will you attend the “GATA
Gold Conference” (www.goldrush21.com)
on the 8th and 9th August of this year in Dawson City, Yukon,
Canada? Do
you think that this part of the world has enough gold left for a second
“Gold Rush”? Do you follow the plans of the company Klondike Star
(www.klondikestar.com) to mine 20
million ounces of gold?
David Morgan
I will be attending
Gold Rush 21. There may be enough gold left for a second gold rush, I will be
visiting a project while I am in the area. I seldom comment on companies in
the public domain so will defer comment on Klondike
at this time.
silberinfo:
According to our
information's there is being done extensive research about additional
applications, i.e. that silver can be used for the fight against forest
varmints. Do you have information about new uses of silver?
David Morgan
I am always
researching and recently did an interview on www.freemarketnews.com
with Dr. Ellis and spoke about many of the new uses for silver.
silberinfo:
The mandatory question: How do
you judge the influence of digital photography to the silver market dynamics?
David Morgan
It will have some
influence but it will be minor, almost all photographic silver is recycled.
That is why the recycling business in silver produces in the order of over
200 million ounces of silver annually. The silver comes back into solution
when the color prints are made and this silver is sold back into the market.
As the photo silver market declines slowly, so will the recycling of silver.
silberinfo:
What is your
estimation about the silver reserves of the Chinese and Indian government?
Why can we suggest that the production deficit will not be balanced by sales
of China and India?
David Morgan
These are unknown
quantities and to make a guess only to be proven wrong later on puts my creditability
into question. I will say that China has not sold as much silver
last year and I think their sales are winding down and may cease soon. India’s
government has started to sell silver but there are some problems the silver
is not well refined (not .999 fine). This implies to my thinking that the
silver users are doing all they can to get whatever precious silver they can
find. You can draw your own conclusions.
silberinfo:
What significance do the weekly COT
data have in your analysis? Is it possible that they will lose importance
during rising prices in the future?
David Morgan
The COT is vital in
analyzing price movements, but this will have less significance as the
physical silver market gains strength.
silberinfo:
In the last years each price rise
of silber was accompanied by a strong increase in the speculative positions
as can be seen at the respective COT figures. Is the entire silver price
dynamic which we have witnessed solely driven by speculation or do we already
see sustainable price changes due to the changed fundamentals?
David Morgan
You are seeing both.
There is more interest in silver because the price is higher, and you are
seeing more speculation because the price moves or is increasing in
volatility.
silberinfo:
Do you see the danger
that – similar to the times of the Hunt Brothers – the rules at
the COMEX will be changed “over night” to protect the short
sellers during strongly rising silver prices?
David Morgan
I need to correct the
record, I may have stated earlier that the rules were changed. The CFTC met
with me and explained that the rules were already in place, they (the CFTC)
were merely enforcing the rules, as they existed. The CFTC is there to
protect the large investment houses not the public, certainly a similar
situation could manifest again.
silberinfo:
What strategy do you prefer in
the volatile silver market – trading or buy & hold? Do you give
sell recommendations to your readership?
David Morgan
My main strategy has
been to buy and hold. I do favor both however, for those that have the time
and willpower trading perhaps 25% of a metals portfolio make a great deal of
sense. As we move into the second phase of this major bull market, I am
considering adding a service for those that want to swing trade these
markets.
silberinfo:
What significance does chart
technical play in your analysis?
David Morgan
Much more than I speak
about. Although most of my monthly reports are not filled with charts I do look
at the technical aspects a great deal, after all both gold and silver are
known as commodities to almost everyone. Only a subset of that group think
they both hold significance in human history as money.
silberinfo:
What do you think about paper silver
contracts such as options and certificates? Do you recommend leveraged bank
products to your clients?
David Morgan
I am totally Free
Market, if someone wants to hold paper go for it, however, this is not what I
teach. For people that read or subscribe I teach to own real metal first,
paid for—no leverage, then the move into the mining equities is much
easier and safer than futures of options. If a person wants to use leverage
that would be their choice, and I would not encourage or discourage it.
silberinfo:
What do you think about the
"ticking time bomb derivatives market" which positions already grow
exponentially? In the long term rather a risk or a chance for the gold and
silver market?
David Morgan
I believe that the
derivatives market will eventually manifest in a huge disruption in the
financial system. It happened with Long Term Capital Management, and the Fed
was able to put the „Genie“ back into the bottle, I am almost
certain at some point the cross defaults will not be talked away by the
financial leaders, in other words, the market forces themselves will take on
the final reality.
silberinfo:
For how likely do you see a banking crisis (possibly in the "domino
effect"?) because of the derivatives markets? When and how fast could it
come? Would well-informed paper gold/silver investors have enough time to
sell their derived paper or could an impairment of these "assets"
come "over night"? Why is it safer to hold mining shares during
those times?
David Morgan
Most students of the
markets know that markets move down much faster than they move up. This means
that in a true panic there might not be enough time to get out, because
things can happen very quickly. After the 911 crisis the markets were closed
down, this could happen again due to a financial problem. Mining shares and
metals futures or options are derivatives, simply they are really paper
claims (derivatives) on real assets, and therefore one would not necessarily
be better than the other. This is why I teach a true metals portfolio must
contain the real metal first.
silberinfo:
At the end of 2004, the "Office of the Comptroller of the Currency"
(O.C.C.), a department of the U.S. Treasury, indicated the total notional
derivative positions of U.S. commercial banks (not including investment banks
such as Goldman Sachs, etc.) having reached 220 trillions U.S. Dollar
(20-fold increase in 13 years), whereas 86% of these positions represent
interest rate contracts. How do you judge this dominant share of interest
rate contracts? How far do you think that the FED is influenced by these
positions regarding their power to increase interest rates? Kindly
substantiate the danger for the globalized financial markets because of the
huge derivative positions in general.
David Morgan
I personally think it
is totally out of hand. With this interest rate "bets“ both
parties can lose. How would that be possible? Well for just one example
let’s say Bank A is betting interest rates are going up, and Bank B is
betting against them. Bank A is correct, but the exposure to Bank B is so
great that it defaults (simply cannot pay) Bank A. Now Bank A has a problem,
they were correct but did not make any money of the transaction. Now most
people think, even this is not a problem because the Fed would step in and
make the loan good, at least to one party, and this is a possibility, but the
financial markets are so intertwined with insurance companies, mortgages,
swaps, re-purchase agreements, bankers acceptances, etc. Thus the possibility
for a random event to begin working its way through the system is much more
probable than most people think. The danger is rather high in my view. This
has basically locked the Fed into a much more powerless position than again
most people believe. When the market starts to set interest rates, regardless
of the price of the Discount Window set by the Federal Reserve, people will
be questioning how can this happen, and the answer will be the Fed is not all
powerful, the market knows best.
silberinfo:
JP Morgan Chase is holding derivative positions that are seven times as big
as their business equity. The revenues of these positions were only 3.9% of
the total gross revenues of the entire company. Why do you think such big
(and therefore risky) positions are being made, eventhough the revenues out
of this business would be neglectable and do not represent a core business
field regarding profit?
David Morgan
This is opinion only.
I think the „hedging“ started out rather innocently but after
some point got out of hand, now there is no turning back, and previous
positions are being re-hedged, this process cannot be turned off, or the
whole system is at stake, there is really no choice at this point.
silberinfo:
Do you think that Gold will regain an official monetary role in the upcoming
years? What about silver?
David Morgan
I do think that gold
has a better than even chance of being tied to the money system in some form
going forward. This is unlikely for silver, but again the possibility of
remonitizing silver in Mexico
cannot be ruled out yet.
silberinfo:
Many primary silver
mines cannot mine profitable at current prices, oftentimes only via mining of
silver as a byproduct, companies can sell silver with a profit. What is the
reason that the managers of primary silver companies do not talk publicly
about the silver price being managed permanently?
David Morgan
As of the close of
2004, there was not one primary silver mine that mined silver at a profit on
an annual basis. Some showed quarterly profits but NOT on an annual basis. I
do not know, you would have to ask those respective companies.
silberinfo:
On the 15th April last year, the Rothschild Bank withdrew from the gold
fixing in London.
Did this come as a surprise for you? How do you judge this step, what could
have been the reasons?
David Morgan
It did surprise me,
but upon reflection it seems that the Rothschild’s want to be as far
away from gold fixing as possible when gold and silver really make large
moves, especially if there are delivery problems in the future.
silberinfo:
The U.S. real estate prices are reaching new highs, the debts levels continue
to widen and the air for the popular stock markets is getting increasingly
thinner. How do you judge the recent developments? Does now come
"the" stock market crash or do you see higher probabilities for a
Dow Jones at lets say >20,000 points in line with strong inflation?
David Morgan
This is an area that I
continue to study and put some thoughts into a recent report of mine,
reflecting on some work called the Great Bust Ahead. I am currently reviewing
more data, and as I write the S&P have hit a four-year high. I think
during the second major leg of the precious metals cycle it is entirely
possible that commodities and equities will go up at the same time. This is
counter intuitive but with the amount of credit formed that last several
years this „money“ will be seeking a home. Real Estate will most
likely continue but not at the same rate, and is already showing some
weakness in certain areas. Home prices could stabilize while the general
stock market starts to make new highs.
silberinfo:
The company First Silver Reserve apparently anticipates strong price appreciation
potential as even having bought ahead vast amounts of silver out of the
market. This is a prime example for a company that believes in the future of
its product. Do you think that among most silver miners there is more
pessimism than optimism about the future prospects of the silver price?
David Morgan
Most companies I speak
with are favorable on the price of silver going forward, some just manifest
it in different ways.
silberinfo:
What country is the most
prospective one for silver exploration – Mexico,
Argentina
or other countries? What about the political risks?
David Morgan
Political risks abound
worldwide. Mexico seems to be the main place for exploration, but South
America is a close second, perhaps it could be argued the other way around.
Silver exploration continues in Russia
and Asia as well. To avoid as much political
risk as possible people should invest in many different areas geographically
and politically.
silberinfo:
What do you prefer?
Physical silver or shares of unhedged silver mining and/or exploration
companies?
David Morgan
Physical, top tier
unhedged companies, and speculative mining shares in that order. This is how
we have structured the Model Portfolio for subscribers to „The Morgan
Report“
silberinfo:
We anticipate soon
strongly rising prices that will lead to a double-digit price until the end
of the year. Do you share this expectation?
David Morgan
I am on record as
forecasting $10 U.S.
silver in 2005, most likely in the fourth quarter. If I am wrong, there is an
even better chance for ten-dollar silver in the first quarter of 2006.
silberinfo:
What advise would you
give to a novice silver investor?
David Morgan
Read my ten rules of
silver investing and start with real metal first. It may not have the
leverage or appeal that owning the right mining company might have, but it is
the best place for everyone to begin.
By : Silberinfo.de
www.silberinfo.de
.
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