Here's Why You Must Protect Yourself Outside the Financial System... / Commodities / Gold & Silver 2019

Mike Gleason: It is my privilege now to welcomeback our good friend David Morgan of The Morgan Report. David, it'sgood to have you on as always and we appreciate the time today. How are you?

David Morgan: Mike, I'm well. Thank you forhaving me.

Mike Gleason: Well, we've had a significantcorrection in precious metals prices, especially in silver, and I wanted to getyour thoughts on that to start out here. To us, it looked like the bullionbanks sold futures contracts to lots of speculators who got interested inmetals. Then as often happens, the speculators got taken out to the woodshed. However,open interest appears to still be rising. We would have expected that to fallafter a couple weeks of lower prices and pain pushing those longs out of themarket, so maybe something else is going on here. What do you make of therecent price correction and where do you think the markets might be headed inthe short term? Do you think the selling might be over for now?

David Morgan: I do not. I think there's probablymore so on the head. I mean, it's possible that we get a lift here to do a fakeout from the longs, but I don't like the structure of the Commitment ofTraders. Silver hit about a three-and-a-half year high, which hit $19.65 whichI believe was the top of this spot market. And we've had several instances overthe last six, seven, eight years where the last day of trading was the low pickfor the year in the metals. Traditionally they start moving up the end of theyear, but that's not been the seasonality for many years now. So, I think we'regoing to drift off lower. It's possible that the bottom is in, I called thefour about a $1,450 on gold, about a 50% retracement from the $200 move thatwent from $1,350 to $1,550 when it finally broke that six year trading rangeand it's done that. But yet in looking at the CoT, I think we probably going tosee lower before we see higher.

Mike Gleason: Obviously one asked to kind ofcheck it's check their premises after a just the long period, especially insilver. Gold of course did reach that six year high silver has never gotten tothat point or we haven't really broken out of the trading range. I'm sureyou're probably doing this all the time, checking your premises and wherethings are, I mean is gold and silver still going to be a good place to be overthe long run despite all the consternation and the difficulty that we've seenover the last few years?

David Morgan: Absolutely. I mean we're facingsomething that's really never been, taken place in monetary history at leastwhat we know of recorded history, and we're seeing the demise of the age ofempire. I mean basically everything was built on this system, on money and themoney system is actually designed to fail from the start. You cannot haveinfinite interest rates. And what it mean by that is the, the exponentialfunction, the compounding of interest over and over and over again. They'll goto infinity eventually. So, we've had adjustments and certainly some very bigproblems throughout monetary history. I mean there's several that we can name.The point is, I don't think it's ever been one of this breadth and scope wherebasically you know that 7 billion people on the planet and very few will comeout unscathed. It's certainly not the end of the world, but there will be anadjustment and how big how hard and how long that adjustment is, no one reallyknows.

I think the main thing to do is to one, not panic and to realizethat all the wealth stays in place. I mean all the agriculture, all of the oilfields, all the buildings, they're all still there. But what takes place in afinancial adjustment, a currency reset, any words that you want to use, is thatthe ownership changes basically. So, you have a lot of people that might beover leveraged, and the over leverage will take them out of the gameso-to-speak. So, real estate investor that's on the margin, that's veryleveraged, waiting for, let's say hyperinflation to bail them out may have madethe wrong bet. There will be deflationary forces. It's inevitable because ofthe way capital markets are set up. So, when the bond market starts to fail,interest rates will start to be pushed up and that will decrease the value ofthe bonds.

And since they're so massive and so widely spread out among thefinancial capital markets, they basically touch everything… pension plans,retirement savings, savings, even money markets, everything is basicallytouched by the debt markets. There's nothing that really could escape it. So,this is something that had my eye on for years and I've always stated that,watch the bond market that holds the keys to the kingdom and the bond marketreally starts to be questioned for its ability to not just pay the interest,but what is the real value something that can never be paid off, i.e. thenational debt? Then at some point you'll probably start to see some movement inthe bond market. I think of what happened in my lifetime. I don't think we'vegot another five years, but people such as myself and others before me havemade statements similar to that and then they're wrong in their timing, andit's very difficult to say when.

In fact, I was listening to a podcast this morning because I trybest to stay up on all of this and his forecast was like 2047 and I forget howit came up with that number, but it never hurts to be early. And as the marketstwist and turn the least valued assets right now, particularly silverand gold, somewhat relative to the S&P, the DOW, the real estatemarket or anything else. So, both metals are undervalued, particularly silver.So, when you buy something undervalued and add it to your portfolio or balanceor rebalance your portfolio is something we really should consider.

Mike Gleason: Certainly, a key points that youhit on there is that it's never bad to be early. You definitely don't want tobe late. Being too early as is not the of the world. Being too late iscatastrophic.

It's obviously not been a whole lot of fun for gold bugs thesedays. The Fed has returned to cutting interest rates. They are pouring hundredsof billions into the repo markets and they have launched a new program topurchase treasury notes, which looks suspiciously like Quantitative Easing. Onemight think all of the stimulus along with the trouble the Fed is trying toaddress in the repo markets would drive precious metals' prices higher, butthat isn't what happened. For most investors the takeaway from all thisextraordinary Fed policy seems to be “buy more stocks” and “there isn'tanything to worry about.” Do you think that is the right takeaway and can theFed keep this party going a while longer?

David Morgan: Well, it's not the right takeaway,but it certainly points to the fact that there is a lot of manipulation andcontrol in these markets. I mean anyone that's subjectively looking at thefacts, as you just stated, sees that there's more money printing going on. Thisrepo thing is scarier than it looks and yet, the stock market continues to makenew highs. I'm just repeating back what you said, but fundamentally all thosefacts should lead to higher precious metals' prices and they don't. And why isthat? And the reason being, as almost anyone that's ever listened to me or anymost people on your show would say, look, it's the paper paradigm that runs thefutures markets. And that's how the prices determined. And until that is brokenenough for the market to settle based upon the physical market, you have theability to basically control the price more or less.

And that's unfortunate. People hear that and they getdiscouraged and he said, well, you know, why fight the Fed? I'm just going tobe in the stock market. I don't want to be the metals. But as we said in thelast segment, it's important to be prepared for what the eventuality is becausenothing grows to the moon. The Fed Is not all mighty, even though it might seemthat way at times, and we're getting near the end. I do believe, I know that'sreally tough to time, but I can't see it going on much longer. Our debt is sohigh relative with the interest payments are, and this is with low interestrates. If interest rates get pushed higher as I outlined a moment ago that it'smore and more difficult to service the debt. So, no, the fundamental facts haveprobably never been more important for owning some precious metals.

And yet the market is just worn out. I mean it was a six yeartrading range for gold. It finally broke above it. It went up rathersignificantly. $200 on a $1,350 is a pretty good move given up half of it andit's taken awhile, and people say, “Ah, that's it.” And it would comment, andof course you could comment on my comment because as you know Mike I talk tomany of the wholesalers and retailers in this marketplace and most of thebigger ones as well… and I was told by one rather significantly sized retaildealer that they were getting a four to one ratio, meaning they were buyingback from retail, not on the wholesale side, about four times as much gold asthey were actually putting through the door. So, most of this move has beenbased on the bigger money, in other words the ETF's, hedge funds, banks, youknow China, that type of thing.

Mike Gleason: Yeah, certainly that's similar toour experience as well. Definitely kind of a skewed to one end there. Well we'dlike to get your comments on the department of justice investigation of thebullion banks, they have indicted several bankers including six now fromJPMorgan. They've gotten a few guilty pleas and some of these guys appear to becooperating. The DOJ is going to be prosecuting using RICO laws, which impliesthere is evidence which goes beyond cheating by a few rogue traders. They aretreating this activity like organized crime. On one hand we're skeptical aboutwhether the investigation is going to lead to real results. We'll believe itwhen we see it when it comes to the federal government doing anything seriousabout corruption at major Wall Street banks. The banks pretty much ownWashington DC, as we saw in 2008 when massive fraud led to exactly zero highlevel prosecutions and crooked bankers were handed bailouts instead. On theother hand though this prosecution does kind of look like it might be goingsomewhere. Do you think the DOJ might be serious about this investigation?

David Morgan: Oh, I certainly hope so. I agreewith you. I mean, I’m on record as having said there's going to be another, youknow, wrist slap and that would be about it. But now that you know more areinvolved and it seems like there's a bit of a pit bull attitude, meaning thatthe DOJ hasn't given up or going away very easily this time. I am optimisticthat may be just maybe they will actually pursue some justice in this case. Itremains to be determined. So I'm slightly optimistic that I could have beenwrong earlier when I said it'd be nothing more than another, you know, wind up everybodyand then it's just a wrist slap, pay the fine and go back to business as usual.It certainly hasn't changed the trading structure of the COT. That would be oneindication to me that the banks are scared that there's going to be some realeffort put forth to this investigation and the prosecution process. And so farit has not indicated that.

Mike Gleason: Getting back to metals prices here,David, the gold to silver ratio has been quite stubbornly stuck in themid-eighties about 85 to one as we're talking here today, we saw it get up toabout 90 to one earlier this year and after a summer rally it fell. But I don'tthink it quite got below 80 to one at any point. Although maybe it did innerday perhaps sometime over the summer, I don't recall exactly. So, it seems likethe ratio, like silver, is really stuck in a range. It's between say, 80 and 90to one. So, what do you make of the gold to silver ratio, David?

David Morgan: Well, it's historically high. It'sbeen as high as a hundred a few times since the crime, 1873 when silver wasreally demonetized. When you have silver and gold performing the same function,which means money, it's never traded above 20 to one. So, if you go back toancient Egypt till 1873, basically, silver had a ratio of 20 ounces of silverto one ounce of gold or lower most of the time, lower like 12 to one 10 to onenine to one, that type of thing, until it became a commodity only. And so itreally depends on how things on unravel going forward. And when the monetarydemand for gold accelerates, it will spill over to the silvermarket. And once silver is thought of more on a monetary basis forinvestment basis, for protection basis or anything that you associate withprotecting capital or making capital gains, that's when you'll see the ratiocome down.

And I'm certain that it will, it's just hard at this point intime when things have gone on for a long time. I mean the peak in silver wasthe end of April or early May 2011 and here we are at the year 2019 and silverhas not performed as well as gold. Gold's at a six-year high, but silver hit athree and a half year high and fell off rapidly. So it's tough. I do stillbelieve in the metals and it's not because I'm stubborn is because I studiedmonetary history so deeply and intensively, and I know the outcome ahead is notone that's very pretty for the fiat system and it's apparent. I mean, if youjust forget everything I've ever said about the precious metals, just look inthe landscape of money as it's perceived right now, there's lots of alternativethings going on in the monetary system.

Bitcoin is probably the prime example. There's somebodysomewhere that said, “Look, I've had enough with what the government's controlI'm going to try this one.” And of course there were a lot of copycats outthere, but this is what happens at the end of the age of not only impart theend of the age of a currency experiment that has always failed in the past. So,that's a good indicator. It doesn't have to just be gold and silver as analternative. They're all alternatives that are coming to the fore all the time.Of course you have precious metals back cryptos to some extent and you haveothers that are associated with the different commodities and you have somethat are just fiat, basically. They’re just an edict that says we’re only goingto make this many. There's some that are unlimited. Nonetheless, the main pointis that there is a striving to find an alternative to the current monetarysystem.

Mike Gleason: Yeah. There certainly somethingthat continues to go on underneath the surface when it comes to our monetarysystem and yeah, people need to take note of that and recognize that none ofthe problems of the last eight, 10 years have been resolved to any extent. Infact, they've only become worse. So, I think when we're talking about checkingour premises as precious metals minded folks, we need to keep that in mind.

Well lastly, David, let's get to any final comments that you maywant to leave us with today. Perhaps something that we haven't covered yet.What are you going to be watching most closely or what do you think peopleought to be focusing on?

David Morgan: Well, as I've always stated, Ithink the best thing to do, if you are inclined to understand where we are inour current economic system, it's probably very wise to have some preciousmetals. And if you want to go beyond that… I mean, I don't really like thestate when I heard it, but it's absolutely true…. one of these old timers, whenI spoke to the Society of Mining Engineers very early on in this career, aftermy talk a guy came up and said, “Oh, I've always made more money and papersilver than I ever have paid in silver, silver.” And what he meant was not futures,he didn't even mean options. What he meant was the mining equities. And so thisis true. I mean, for example, when we had a great run in 2016 and I thoughtthat the bull market had restarted for the precious metals certainly lookedlike it at the time, but at turned out I was wrong.

It might've been a false start. I'm not going to make an excuse.I was wrong. Nonetheless, it was a very big ramp up for the metals. We had asilver and gold performed from January 2016 all the way into September and thenthey started to correct. The point is the silver made a pretty nice percentagemove, but we've traded First Majestic almost perfectly during thattimeframe and during that timeframe it outperformed the metal like five to one.So, there are times when equities do play a part of the portfolio, but they’refor aggressive investors. It's not something that's a casual buy and hold typeof situation. These are volatile, high beta, meaning high volatility stocks,and you pretty much have to know what you're doing to perform well in aportfolio. And again, it would be part of an overall structure. It wouldn't bejust those shares because they do move up and down so rapidly.

Mike Gleason: Yeah, you either need to reallyknow what you're doing and how to identify and decipher a geologic survey putout by a mining company or you just need to get hooked up with peoplelike The Morgan Report and let them do a lot of that analysisfor you, like you've been doing such a great job over the years. Well, goodstuff, David. It's always a real pleasure and we appreciate your insights onceagain. Now before we let you go on that note, let's tell people about TheMorgan Report and how they can get on board and then follow you moreclosely.

David Morgan: Sure. Just go to TheMorganReport.com, our mainwebsite, give me a first name and an email. We'll put you on the free list.You'll get a weekly update, I call it the Weekly Perspective. I talk about themost important financial news that you probably won't find anywhere else. Someof it's mainstream, like a Bloomberg or Reuters or whatever. These are articlesdug out that most people overlook or don't have the time to find. And then Iusually wrap up the end of the segment with some comment or commentary on bothgold and silver, and it's a good way to kind of catch the, let's say,alternative view of the news. And it's not just bloggers or anything like that.A lot of stuff is mainstream, but you got to know where to look to find it. Andthe main theme over the last say, several months, Mike, has been, there'sreally a contraction in the global economy.

And the second thing is that we have a food situation that'sgoing to hit everybody here probably in the not too distant future. Probablywithin the next six months, year at the most. And this is something that mayspark the metals because it's pretty hard to hide rising food costs, or risingenergy cost. The two things that Americans particularly pay attention to is howmuch does it cost me to eat? How much does it cost me to fill up my tank ofgas? And so, I think that could, I’m not saying would but could, be a catalystfor people to say, “Why is this costing me so much, there must be inflation.”And in a way it is, but in other ways it was supply and demand. So, it's goingto be interesting to see how things progress during these very, very turbulenttimes and I don't want to be overly aggressive on the gloom, doom type ofscenario.

Certainly there's a lot more to life than money, but nonethelessI think a chance favors the prepared mind. So, if you are prepared, you cansleep well at night and regardless if I'm off by a factor of a decade or not…it's something, if you're my age, you might pass on their kids… as long as youdon't over invest I think it's actually the best way to protect yourselffinancially cause it's outside of the current system. And that's a key pointthat some have said but probably isn't emphasized enough and everything failsas a thought experiment. Let's say as an example, the banks go down because ofsome electrical failure somewhere. You can always go to your trusty coins andthere they are, and they always have value. So, I'll leave it at that Mike.

Mike Gleason: Yeah, very well put a good summarythere and couldn't agree more. Well, thanks again David. I hope you have agreat Thanksgiving and we'll be catching up with you again down the road. Takecare of my friend.

David Morgan: All right, you too. Thank you.

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.

© 2019 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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