Source: Chris Marchese of The
Gold Report
David Morgan, editor of The Morgan Report, expects gold to top
$1,800/oz and silver to top $40/oz by the end of the year and both to take
off from there. In this exclusive interview with The Gold Report,
Morgan shares the logic behind his predictions.
The Gold Report:What's your current outlook on metals, the
economy and the general market indexes?
David Morgan: My outlook is bullish on the metals both
short and long term. I think that the bottom is in for the mining equities as
well as for the metals themselves. More and more people will realize that
there's really no way out of this debt-based monetary system, whether it is
about the U.S. reserve currency, the Eurozone or anywhere else on the planet
that uses a fiat currency. There's a problem here and it can't be resolved.
We're going to see more pressures to the commodity sector in general,
particularly the precious metals.
TGR: In mid-May you called the bottom in the mining
shares and the bullion. What leads you to make such bold calls and maintain a
high degree of accuracy?
DM: I use my own indicators that come from a lot of
experience. A couple of other things also keyed me. One was that the
sentiment was so bad that it was screaming we are "at the bottom."
Another was that there were a few days where the volume was very, very high and
there was no real buying pressure. It was short covering. Short covering at a
bottom is a good indicator that the smart money or the professional money is
moving out of the market. In other words, they shorted for a very long time.
They made their money, they're getting out and are covering their positions.
All these factors led me to decide to stick my neck out, which is part of
the job I do, and say that this looked like a bottom to me. My experience of
over 30 years in this business tells me that it usually takes about three
months to confirm a bottom. I'm pretty convinced that I did get the bottom;
now it's just wait and see another month or so if I'm correct on the metals
themselves.
TGR: What prices are you predicting for silver and gold?
DM: I'm looking for silver to be above $35/oz and perhaps
as high as $40/oz by the end of the year. I think we could see gold at about
$1,800/oz by the end of the year. We still have four months ahead of us this
year and with the fix that the global economy is in, a lot of people are
going to come back into what they call the fear trade, and that will lift the
metals. Once gold reaches a couple of upward resistance lines, you'll see a
lot of momentum players come to the market as well for a quick trade.
TGR: Last year you were predicting $75/oz silver. What's
changed since then?
DM: What's changed is the deflationary scare that I also
talked about. It just happened to go a lot longer. I changed my mind partway
through. That's one reason why you would subscribe to something like The
Morgan Report, especially if you really want the most up-to-date
thinking. Basically, we saw a big push from Quantitative Easing 2, where
silver went from $26/oz to $48/oz. A lot of people thought it would keep
going. I called that top at that time and thought that after it ebbed and
flowed we might be able to build a base quicker than we have.
Once I was able to determine that the base building would take a lot
longer than I originally thought, I changed my view and said we're going to
look at probably $35–40/oz by the end of the year, not $60–75/oz. Will we
ever see $75/oz silver? Absolutely. I've always predicted that we would see
$100/oz silver as a minimum. I still think that's low but we haven't been
there yet. So, you have to first get to $60/oz and $75/oz silver before you
get to $100/oz. I'm still looking for the top to be out probably three to
four years from now.
TGR: What do you see going forward into the new year? Any
particular price targets for silver, gold and the white metals?
DM: I'll be a little more conservative than I was at the
beginning of this year. I think in 2013, we'll see silver above the nominal
high of $48/oz. As for gold, for 2013 I believe we'll take out the $1,900+/oz
level that gold has already achieved. I'm looking for new nominal highs in
both metals in 2013. I think we'll get far beyond that but I don't want to
put a number on it at this time. I've wiped enough egg off of my face this
year.
TGR: Taking a macro view, what do you see in the
general/physical economy from a monetary point of view?
DM: The physical economies are not doing that well in
much of the world. A lot of misallocation of capital has taken place. China
is a good example; it has tons of real estate that can't be rented. The
prices are too high.
Food stocks, generally speaking, are in some cases lower than they've been
for quite some time. Energy, food and water are crucial globally and there
hasn't been enough capital movement into those essential elements. A lot of
nation states are looking at what they have in the ground or are growing on
the ground and are coveting their own natural resources. In the book
"Resource Wars," Michael Klare outlines the scenario of nation
states going to war to either take resources that they need or defend resources
that they already have. I'm not predicting war but we already see increased
competition for resources.
On the financial side, the political class in every country is doing
everything that they can to make this a fuzzy, mysterious problem that
they'll blame on anybody but themselves. And, of course, they're the main
culprits because they have so much control over the money supply.
So, I see the physical economy dwindling, resource wars in our future and
the political class pretending as if nothing's really wrong. Everything is
going to be happy tomorrow but tomorrow never gets here.
TGR: On to the mining side. Given the upheaval we've seen
in Argentina, Peru and most recently in Guatemala, what do you consider the
most mining friendly countries?
DM: Currently, I would say Canada. We just did a piece by
David Smith in The Morgan Report about the overlooked silver mining
ability of Canada and mines in general. The United States still is a good
place, especially if you're a foreign investor. We have a lot of recommendations
in Mexico, but I never want to have too much in any one geopolitical area.
Some of the Scandinavian countries would be fine. In Africa, you have to pick
and choose based on what part of Africa it is. There are resources in Africa
but they're being developed as brand new. We really don't know how well
they'll work out because there's not much empirical evidence yet. South
Africa is a mess and getting worse. I've stayed away from South Africa during
this bull market even though I was very heavily invested there during the
first bull market in the 1970s to early 1980s. There are some exceptions, but
the risk is very great.
There is a report put out by the Fraser Institute that gives its take on
the most politically stable countries for mining. I don't agree with it
completely, but it's a good start. This is an art form and not something that
is scientifically derived. Investors want to be careful about the
geopolitical jurisdiction because no one can call them all perfectly.
Investors should not put all their eggs in one basket when you're in the
resource sector. Either have some top-tier companies that have assets all
around the world or, if for investors picking their own stocks, use a service
like ours to make sure that the investments are spread out geopolitically.
TGR: What is the best investing advice you have ever
received?
DM: It sounds trite because it's said and people don't do
it, but cut your losses and let your winners run.
TGR: It's hard to do.
DM: But that's one of the best because if you're able to
sell, you are doing the opposite of what most people do—most people sell
their winners and hold their losers. No, investors should cut their losers
and let their winners run because if investors have one stock that's going to
make 100 new highs over a 10-year timeframe, that's the one you want to keep
all the way up.
TGR: I think that's great advice. Thank you for taking
the time to talk to us.
David Morgan (www.Silver-Investor.com)
is a widely recognized analyst in the precious metals industry; he consults
for hedge funds, high net-worth investors, mining companies, depositories and
bullion dealers. He is the publisher of The Morgan Report on
precious metals, the author of "Get the Skinny on Silver Investing"
and a featured speaker at investment conferences in North America, Europe and
Asia.
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