David Smith: Future Silver Prices Will Shock People, and They'll Kick Themselves for Not Buying Under $20... / Commodities / Gold & Silver 2020

Mike Gleason: It is my privilege now to welcome back David Smith, SeniorAnalyst at The Morgan Report and regular contributorto MoneyMetals.com. David, it's good to talk to you as always and how areyou my friend?

David Smith: I'm just fine and it's great to be back, Mike.

Mike Gleason: Yeah, well it's been a handful of months since we had youon, and I've got a lot of topics to discuss today so we'll get right into it.Now to start out, here we are about a month and a half into the new year.Metals prices perked up in December but haven't really done much since that firstweek in January when it looked like we were about to head to war with Iran,which was a short-lived crisis thankfully. But in our view, markets areincredibly complacent, David. Stock prices just keep moving higher and higher.Nobody seems to be worried about risk, this despite there being plenty ofreason for concern. To name a few, we've got a virus outbreak. There continuesto be extraordinary activity in the repo markets – officials still haven'treally bothered to explain what's going on there. And Brexit is finallyhappening. Maybe we're missing something, but it really feels like marketsignore all this stuff completely.

A decade ago, the fedpumping hundreds of billions into the repo markets would have been a majormarket-shaking story. Meanwhile, one of the EUs largest economies having exitedthe trade union, raising questions about whether the EU can survive a storylike that, would have been making serious waves. But the life cycle of thesesorts of stories just keeps getting shorter and shorter. We're to the point nowwhere the impact of a major geopolitical event can be measured in hours, ifthere is any impact at all. So, what do you make of the complacency in markets?

David Smith: Well, Mike, I agree with everything you just said and it'sreally amazing that no matter how big an item is, people just slough it off.They seem to feel that the central banks have their back almost no matter what.If they can, if you have an 800 points drop in the Dow over two days, why theFed is going to come in and step in and pump it right back up again. Of course,that's what they've been doing. But to make that your strategy I think isreally pretty dangerous, and it works all the time except for the last time andthen you get wiped out. I really think it's worth being cautious, and not onlythat, but in terms of buying metals thinking, Oh, I'll wait until it doessomething. Well, it's time to do it when it's quiet. That's when you want to beinvolved, not when you're competing with a bunch of other people.

Mike Gleason: Yeah, certainly. Good advice, it's going to happen in theblink of an eye most likely when things do finally go off a cliff andhopefully, we don't see that. But it does seem like it is inevitable, based onall the debt in the system and all these unintended consequences of all themoney printing for well over a decade now. Of course, going back beyond that,but certainly the massive spike we've seen since the great financial crisis andthe central bank's response since then.

How about the coronavirusDavid? How might gold fair in the event that the pandemic either continues tobuild and then how might it fair if it doesn't develop and ends up flaming out?

David Smith: Well, the demand for gold seems to be there no matterwhat, whether it's fear or love or both. I was just reading yesterday where thegold jewelry purchases in China were down because of the coronavirus, but thegold bullion purchases were up. So, people are still buying the gold. They'renot going to stop buying it just because of what's going on. In fact, you couldmake an argument that they have more disposable income to buy gold now sincethey're not traveling as much. So, I suspect that's no small factor becausepeople want to hoard the gold and have more of it. I think that's going to bejust one more event driver, pushing things forward no matter how quickly thisthing gets resolved, and no one can predict it. I mean, I'm not going to try topredict it.

It seems like things arebetter, but oftentimes these things blow over in a few weeks or a few months.But this could be something that's totally different, and we just don't know.And I think the hang your hat on the fact that it's going to be like all theother short term disruptions in the market, I think that's pretty risky.

Mike Gleason: Yeah. Certainly we don't really know what to believe whenit comes to information coming out of China regarding the pandemic. Who reallyknows? Maybe it's far worse than we are being told. A lot of people seem tothink it is, and others think it's not that big of a deal at this point. Iguess, time will tell ultimately. Hopefully it isn't something that spreads tothe rest of the globe or here in the States. That would be pretty bad news.

Well, silver has obviously been a real laggard in the precious metal space,David and the gold to silver ratio has stayed in the mid-eighties level for awhile now. Has silver's under-performance been a cause of concern for you?

David Smith: Not really. Silver likes to sit around and make peopleimpatient, wish it would do something. On the charts, it loves to break down toits supposed to support zones and then turn right around and move up. I'm notconcerned. When it does decide to go, it can move so quickly that you can'teven get ahold of your hat. People that want to accumulate should be doing itnow sensibly and they shouldn't be trying to pick the exact turn or when it'sgoing to become alive or whatever because silver is known as the restless metalfor more reasons than one. Many, many times people that thought they couldfigure out what it was going to do and when it was going to do, we're leftstanding at the gate. So, I would suggest people not get overconfident in thatarea either.

Mike Gleason: If we look at last year, actually silver did almost aswell as gold. I think silver was up, what 14 or 15%. Gold was up about 18%, soit that gold silver ratio didn't widen dramatically. We just have been stuck inthat that eighties, mid-eighties to one range. What do you attribute silverbeing a laggard to David? Is it this push-pull scenario with it being both anindustrial metal and a monetary metal and the market can't decide what it wantsto be? Is that what's going on there?

David Smith: I really think that is an element in it and because it isan industrial metal versus an investment vehicle or actually sound money. Andthe thing is what it really takes to get silver going is an influx of buyorders from the retail space and from people that are accumulating it, in thatregards. I haven't seen a chart like this because I don't think it's possibleto design one where you, for example, there was a build in gold, which X amountof gold has gone into central banks and to ETFs and things like that. But a lotof gold didn't go into any of those things. It went into private hands, whichis difficult to figure out where it went. I think that same thing is going onwith silver, but there's no chart to show them.

Some of the biggest fundsin the world have stated lately, categorically that they feel silver is themost undervalued asymmetric asset that you can buy. And I don't think they'rejust talking their book. I think they're buying their book. They're going aboutit in ways that you and I can't define, and picking up physical silver, andthat’s taking away from the supply. And at some point, there'll be a clientwhere that becomes obvious to people what's going on, and that's where you'regoing to get a big jump in the price. So, waiting for that to happen, you couldsee a $5 move in the price while you're standing there looking at it over acouple of days, when it becomes obvious to the market. I just think it'spenny-wise, pound-foolish to try to wait until you see it and think that youcan define that and get on board in time to even catch a part of that move.

Mike Gleason: Yeah. I want to get more into supply with you in a momentwhen I ask you about some of the mining situation there, but first sticking onthe retail side of things, I wanted to dive into some of the recent numbersthat we've been seeing from the sovereign mints in terms of bullion sales. Whatdid you make of the recent U.S. Mint sales on Silver Eagles? Then comment onsome big numbers we saw from Australia's Perth Mint in terms of gold sales overthe past a couple of months. Talk about the data you're seeing there, David, ifyou would.

David Smith: Well, I think the sales of American Silver Eagles in Decemberwere paltry to say the least. I mean it was just that, I think it was like, Idon't know whether it was under 100,000 or something like that and then all ofa sudden it was what, 3.4 million in January, and it just shows you how quicklythose sales can turn on a dime. Trying to define that is just, it's justimpossible. It seems to me if you just go against the herd when it's low, youbuy more and when it moves up and you realize, “Hey, I did the right thing,”And the Perth Mint, they were selling enormous amounts of gold in December. Itwasn't just all from one country, but a lot of it was coming from Germanywhere, and I actually wrote about this in the current essay for Money Metals aspart of the essay, where the German government had moved on, and I guess it'slaw now, where you, if you bought under 10,000 euros worth of gold, you didn'thave to report it. But now it's 2000, and three years ago it was 15,000 euros.

So, they've taken it downby about 90%. You can only buy one and fractional ounces of gold without goingthrough a bunch of paperwork, and making sure that everybody in the world knowswhat you did. Because you want privacy, doesn't mean you're a criminal oryou're going to do something illegal. It means that it's not everybody'sbusiness what you do. Now these poor people in Germany and many of them linedup around the block of these stores, and most of them didn't get any gold. Nowthey're stuck with, no matter what happens, they can't buy more than about anounce of the time without doing a bunch of paperwork and getting permissionfrom the government.

You can imagine when goldis several times higher than it is, which I believe will be the case in thenext few years, you'll be able to buy a fractional ounce and be under that2,000 euro limit. So, it's sad for them, but it’s the ruling idea of governmentwanting to be more and more in your business, and I say that sort of thingcontinuing around the globe.

Mike Gleason: Another reason to get it here while you can, and still beunder the radar. That's one thing that's thankfully, we don't have to deal within the States when it comes to reporting or the government being aware of whatit is that you're doing. But who knows, maybe we get some politicians in therethat want to become Big Brother when it comes to all kinds of things in thatrealm. Maybe, that's another reason to be buying it now while you can and do sosomewhat anonymously.

Well, you follow theprecious metals mining sector very closely, obviously. So, I wanted to get anupdate on what's happening there. In general, do you miners being profitable atthese gold and silver prices? I mean, on average, what is the all-in cost ofproduction for an ounce of gold and silver? Obviously every mine is unique,based on the quality of the deposits and lots of other factors. But we'recurious about how profitable you think the industry might be, assuming pricesstay right about where they are today.

David Smith: Well that's a double-edged question or I should say,there's a way to answer it in several ways. One has to do with how efficient aparticular miner has become in the last few years at lowering their costs andkeeping labor under control, the expenses and things like that, and havingprojects that actually do well. A couple of companies that I follow haveactually sold their base metal silver projects and they now, are working ongold, silver only. It takes a lot of money to separate out the lead, zinc andcopper from a silver deposit. And if you have one that's high grade silver andnot so much of the base metal, by definition your costs, getting that silverout of the ground is going to be lower than if you have to go send them all tothe smelter and separate each of the components. That's one thing.

There are a couple ofcompanies that I follow that are using new, more effective methods of silverrecovery. So their cost is down and they're making money now, even at theseprices. They'll be a practically cash power houses if we, not if, but when, wesee silver above $20. They've been working really hard to make these thingshappen. One company went from a recovery of 65% of their silver to about 95%.That's an enormous improvement. And that all goes to the bottom line. Thecompanies that are doing a good job in that regard, they're the ones to reallywatch.

Mike Gleason: Why are there even fewer primary silver producers thenthere were a few years ago? And what does this mean for the ability of silversupplies to handle future demand spikes in the investment space, whichobviously as you mentioned, can turn on a dime… what happens when that thatcomes, and there just isn't the supply? Talk about that from the silver miningperspective, and the lack of primary silver producers.

David Smith: Well, sometimes you hear something that really strikes achord and you kind of knew it, but when you hear somebody that's really got thegravitas that really strikes home. Last fall at the Silver Summit in SanFrancisco, I was a moderator on a panel with the three different silvercompanies, one of which was Peter Megaw of MAG Silver. Dr. Megaw, probably hasdiscovered more silver ounces of more high-quality deposits than anyone else onthe globe. He's got just an incredible sense, not only an academic sense, butan intuitive sense about where good silver deposits are found. And he made thecomment that about 75% of the silver comes as a byproduct of copper and basemetal production. In fact, the company and that I follow in China, a Canadiancompany that produces silver there, their costs of silver is like $5 a an ounceto produce, but 40% on an average quarter, 40% of the production is actuallylead.

They're a primary silverproducer, but an awful lot of the production of metal is lead. Because most ofit comes from base metal, we get a big silver spike and the demand is out thereand the supply starts dwindling. There are relatively few, I mean there areliterally a handful, with some fingers left over of primary silver producersthat are… and they're juniors, they're not 10, 20, 30 million ounces silver producers,they're relatively small… and they're the only ones that can step in to fillthat gap. When things really get going, they're not going to be able to fillthat gap. So there's no way that these very few relatively small companies aregoing to be able to make a huge difference, when that crunch comes. And that'swhat people should understand, there's no way to ramp it up. It isn't like, Ohyou open another copper project and suddenly you've got hundreds of thousandsof tons of copper available. It's not like that in silver. That is somethingreally to pay attention to, I believe.

Mike Gleason: Not to mention that it takes a long time to even get minesup and running. There's so many environmental issues, permitting and so forthjust to bring a mine up to speed to the point where it can even be producing,and then that can take years in many cases, right?

David Smith: It's not unusual to take eight or 10 years even on a smallproject… raising the money, finding how much silver you have so that you can writean I43-101 Compliant Report and, and making sure it's feasible. I mean,there've been a couple of cases that I'm aware of, where they went ahead, thecompany went ahead before they had really looked at the feasibility statement,trying to take a shortcut. Sometimes that works. You save a lot of money. Theyfound out that their project has a fraction of what they thought it had whenthey started, and they had built a mill and everything, and they went bankrupt.It's high-risk out there. You've got to know your stuff and you got to be luckytoo.

Mike Gleason: Obviously, with silver beaten down and just grindingsideways for the last five, six, seven years, what has that done to theexploration of these new silver projects, what do you make of that?

David Smith: It's done the same thing it's done for gold. The majorshave put less money into it. They've gotten rid of a lot of their explorationstaff and some of these other people have gone to a small company to try to dotheir own thing, and it's just a frittered away that resource. I was justlistening to Frank Holmes at the VRIC last month in Vancouver and he said thatthe cost of finding an ounce of gold… and I have to believe it's somewhat similar for silver… is 2.8times as much, it costs 2.8 times as much money to find an ounce of gold as itdid 10 years ago. Even if it's half that for silver, which I imagine it'sprobably pretty close to gold, if it costs one and a half times as much as itdid 10 years ago, that's a lot more money to put into finding that ounce ofgold or that ounce of silver.

When people hold thesecoins or these bars in their hand and they really should, they should reallythink about how wonderful it is to have that .999 or .9999, four 9s fine goldor silver in their hands, what it took in terms of money and effort and sweatand toil and time and energy to get that into their hand, and they shouldreally feel privileged to have some.

Mike Gleason: Yeah, I like that. Very well put, and obviously we can seewhat can happen in a supply shortage situation. Rhodium or palladium, thosemarkets have been going parabolic here. We have a true supply shortage in thosemarkets at least that actually matters.

Well, finally David, aswe begin to close here today, what are some of the key levels and gold andsilver that you're going to be looking for both to the upside and then to thedownside, and then assess for us what you think 2020 will hold for the precious metals, and what type of year you think it will be as we begin to wrapup here today.

David Smith: Well, technically, on the upside you’ve got resistance at$18, 19 and 20 and that could even take a while to get through or it could justcut through it like a knife through butter. But that will tell you something,if it does. I think of the real realization is going to start dawning on peoplewhen silver gets above $20 and stays there for a few days, and then you've gota band of resistance, you really don't have too much resistance between $20 and$26. And I think it's very possible that by the end of this year, silver willchallenge $26. I'm not saying it'll get there or it will stay there, but thatis a huge, huge ceiling of the selling supply that was broken some years ago onthe downside, in which created the beginning of the run clear down into the lowteens for silver. Once it hits, gets to $26, and gets above that and forms abit of a platform, the lights are going to start going on around the world thathey, this is for real.

This is not just anotherbear market rally, and we'd better get ready for some action here. Then I thinkyou're going to see a fairly quick challenge between $26 and $50. Whether thatwill happen next year, it's very possible. Certainly, over the year after, butI believe we're going to all-time highs in silver over the next few years andit's going to be in three digits eventually. And you referred to the palladium charta while ago, I think that kind of action is going to be what we'll see someyears down the line in silver, where it's just to an elevated level and peoplethink, "Well this is it. It can’t go any higher.” And it acts like it's apop and all that, and suddenly it breaks through that high, just like palladiumdid about $1,100. It's going to go and go and go and suddenly palladium, nowit's about $2,300. Who would've ever believed that would happen?

Not only that, but thatyou could watch it for months at a time and you could still be selling some ofyour metal. I think that the same thing is in the silver's future. I think thatthe price that it gets is going to shock people, and they're going to say,"Why in the world didn't I buy silver when it was under $20 an ounce,because I wasn't buying something like a boat or couch or something like that.I was just trading on the form of inferior money, fiat money, which loses valueall the time for real money and something that can never go to zero, and it'san industrial metal to boot. And I didn't buy it. I can't believe I didn't doit or I didn't buy more.

Mike Gleason: Well put. We'll leave it there for today. Good advice andI couldn't agree more. Well, thanks for the time. As always, David, I alwaysenjoy the conversation, and we'll continue to watch for more of your greatarticles as they become available at MoneyMetals.com and until nexttime, keep up the good work and take care of my friend.

David Smith: Thank you and I have greatly enjoyed our discussion. Havea great day.

Mike Gleason: Well that will do it for this week, thanks again to DavidSmith, Senior Analyst at The Morgan Report and a regular columnist for MoneyMetals.com, and theco-author, along with David Morgan, of the book Second Chance: How toMake and Keep Big Money During the Coming Gold and Silver Shock Wave, whichis available at MoneyMetals.com and Amazon. Pick up a copy today.

By Mike Gleason

MoneyMetals.com

Mike Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2020 Mike Gleason - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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