This is an interview that
was conducted late November 2006 between the German website www.silberinfo.de and David
Morgan of www.silver-investor.com
We thought it might be useful to our English
readership and therefore are publishing it in mid December 2006.
The interview follows…
Silberinfo: What do you
think about the silver ETF? Is it 100 % backed by physical silver?
David Morgan: I will reserve judgment
for now. The first two 10Q's, which are required to be
filed, did show "real silver", however these were unaudited statements and I am going to wait until the
audited statement is filed before I make my final assessment.
Silberinfo: Do you think
that Warren Buffet has sold all of his silver? Could you imagine, that it was
only "paper silver"?
David Morgan: I wrote a report on Buffett and his silver that is still available to paid
subscribers on my website. I also followed the story very closely in our
newsletter. I still think Buffett actually only
took possession of about 100 million ounces of physical and that was sent to London. It is my firm
belief that the Silver ETF is largely comprised of the silver that Buffett once held.
Buffet may have "leased" some paper silver
as explained in the Buffett report I referred to on
my website but Berkshire Hathaway definitely did take physical for at least
90 million ounces and perhaps the total of 129.7 million ounces. Again, I
cannot prove it but think the actual physical amount was probably about 100
million ounces the remainder was in "paper" form, which was
resolved many years ago.
Silberinfo: From
time-to-time one can read that there's an oversupply in the silver market. Do
you agree?
David Morgan: It depends upon what time
frame we are speaking. When silver shot up to $50 USD in January 1980 a great deal of
physical silver came to the market and was refined into bullion. This silver
has been worked off from the market over the past 16 years to a point where
not much .999 fine silver Comex grade bars exist
today relative to what existed in say the early 1980's. Remember that supply
and demand have to equal each and every year. Since mining has not kept up
with demand the above ground supply of silver has been eaten up and at this
point continues to be eaten up.
However, the amount of silver mined has increased
the past few years due to the huge increase in base metal production and even
increased primary silver production. The question becomes will the market
reach equilibrium at some point and the answer generally is yes. Certainly it
is possible that more silver will be mined at some point in the future than
is demand by the market for industry. This has been the case for gold for
centuries; the reason gold continues to be a good investment is that people
seek it as a store of value. Silver offers the same store of value dynamics
as gold only better because there will always be an industrial demand it is
just that investment demand for silver has not caught up to gold yet. I am
fond of saying that whatever is good for gold will eventually good for silver
and this has become true, with the Silver ETF, goldmoney.com now offers
silver accounts and some wise investors do see that silver has a place in
their precious metals portfolio.
Silberinfo: Lately, Frank Veneroso turned bearish on silver. What do you think of
his arguments?
David Morgan: First I respect Frank and
finally got to meet him at the Gold Rush 21 seminar in the Yukon some time ago. I also admit that the
market knows more than any analyst myself, Frank Veneroso or anyone so keep that in mind. However, I do
not buy his arguments because silver and gold are married like it or not. If
you look at the Bible, the Koran or nearly any book dealing with history or
money silver and gold are almost always together. The fact that silver is the
"poor man's gold" cannot and will not go away no matter how many
people "experts" or not tell you so.
The advantage that investors have is that very
little of silver demand is investment demand, whereas most all of gold's
demand is investment (jewellery) demand. So my argument is that only a very
small percentage of people on a world wide basis need to wake up to the
merits of silver investing for the price to continue to move up. Lastly, I
expect to see a point where the little guy simply cannot or will not be able
to purchase gold it will simply cost too much for him to feel comfortable. This
took place at the end of the cycle in 1980 and some potential
"gold" investors actually purchased silver because it was cheaper
on a per unit basis.
Silberinfo: In your
opinion, what is the better investment today: silver or gold? Why? What's so
special about silver and why do you prefer silver to gold? Are you bullish on
gold as well?
David Morgan: I am bullish on both gold
and silver and think all precious metals investors should have both. Silver
offers greater opportunity due to the fact it is such a small market and
still remains so undervalued relative to gold even as this interview is
taking place.
Silberinfo: Would you
recommend an investment in a silver mining company with a hedge book?
David Morgan: In some cases yes, we try
to avoid it but we are realistic here. A modest "hedge" cannot be
avoided in some cases because the backer usually banks want to be assured
that the loan they give the mining company is secured. When we consult with
mining companies we always emphasized hedging be done on the base metal side
and not the silver side if at all possible. If a company has sold forward
several years of silver production then certainly we avoid that type of
situation.
Silberinfo: What do you
think of options and exotic bank instruments like certificates? Would you
ever recommend your readers to use bank instruments during a precious metals
bull run?
David Morgan: Actually yes, but a very
qualified yes. First if and only if that person/broker/money manager/ or some
entity has real physical bought and paid for sitting where they can touch it
then yes go ahead and speculate in the paper market if that is what you
really want to do. It is not my place to tell each individual what suits them
best, only they can figure that out for themselves, but be warned that when
you are playing the paper silver market only expect paper in return-nothing
more! You gain or loss in some silver certificate of banking instrument is
only as good as the paper it is written upon. Personally I avoid this with
the exception of very modest positions.
Silberinfo: If a big famous
Prime European Bank approaches you and offers you 100,000 USD per month for a
banner on your website promoting their bank products such as Silver-Options
& Certificates, would you consider it?
David Morgan: Possibly, we have been
advised on the legal side not to take ads from mining companies but an
investment in the real metal would be allowed. If it were merely a paper
claim we probably would not take the ad.
Silberinfo: If a friend
asked you, how much silver he should own relatively to his other assets, what
would you recommend to him?
David Morgan: Depends on the person, his
or her age, risk tolerance level and many other factors but at least 5% would
be my minimum recommendation. In the investing rule book I stated 10% and as
of a few years ago said 20% is more like it. It is impossible to state
because it has to be addressed on a case-by-case basis. For those that know
nothing about the function of gold and silver five to ten percent is probably
sufficient. If you are inclined to really watch your investments carefully
and accept the large price swings then higher percentages are in order.
Silberinfo: Do you see a
short squeeze in silver over the next years?
David Morgan: Yes there will be a short
squeeze in silver.
Silberinfo: In your opinion,
why is silver so cheap compared to gold?
David Morgan: Investors are
undereducated on the merits of silver investing.
Silberinfo: In your
opinion, what are the most prospective projects among the silver
mining/exploration companies at this moment?
David Morgan: I get paid for that
information and what I like best right now actually involves a potential
nickel project that may become bigger than Voisey
bay. There is one silver project that I personally toured recently that is a
private company presently but once it becomes public our readers will be
among the first to learn about it and how to invest in it.
Silberinfo: You are a
well-known and highly respected expert on silver. What was the reason why you
began focusing on the moon-colored metal?
David Morgan: Passion pure and simple. My
study of monetary history, investing, and a fiat backed currency, and how few
investors really build fortunes all these things play a factor in my
thinking.
Silberinfo: What is your
personal price target for one ounce of silver at the end of this bull-run? Or
do you think its possible that the bull market won't
end - but consolidate on a high level without correcting all or part of the
way back down?
David Morgan: To put a paper price on
silver may prove to be academic only. In a true currency crisis the paper
value of silver could go to anywhere. I am on record as stating that silver
could reach $100 USD or more at the top. I expect the top to be on a spike
and the price to not last too long at that spike price, once silver consolidates
into an equilibrium price it might be in the $20 to $30 USD range basis
today's USD (December 2006). I must be careful here because most market go
from undervalued to fully valued to overvalued and certainly even silver
should at some point become overvalued even in paper terms. However,
depending upon what was taking place in the currency markets at the time
silver might hit a high level and hold at a high level for a significant
period of time.
Additionally, even under normal currency conditions
if a true shortage develops which is very likely with silver, then the price
could again stay at a very high level for a lengthy period of time.
Silberinfo: As silver is
mainly found at surface levels (contrary to gold) and the above-ground stocks
of silver have (almost) depleted (contrary to gold) thanks to the silver
industry consuming most of it, do you think that there can be a time in the
future that silver will be priced higher than gold?
David Morgan: Great academic question,
certainly it is possible. Depending upon which study you choose one author
stated that silver sold for more than gold in ancient Egypt and another author
stated silver sold for 1/5 the price of gold in ancient Egypt. I
think the point is simply that silver has a great deal of catching up to do
relative to gold. I did have one of my consulting clients phone me years ago
and a well known analyst stated that gold and silver would sell at the same
price around 2013. Again, I take these types of questions in stride and do
not focus too much attention upon them, I am more interested in the here and
now and what we can do now to best take advantage of what the market is
willing to give us.
Silberinfo: Silver is seen
as the small brother of gold, and indeed, silver prices tend to follow gold
prices - but the fundamentals are quite different as you outlined and are
indeed even more bullish than already for gold. Do you see silver de-coupling
from the dominating influence of the gold price in the near future?
David Morgan: Not in the near future,
but it is difficult to define because the spread trade that we advised most
of our institutional clients on long silver/Short gold has been a fantastic
long term trade. In other words silver has outperformed gold just as I
predicted so many years ago and in my view will continue to do so for many
years to come.
Silberinfo: If the Dollar
and other world currencies collapse in the next years, because they are
fiat-money, and a disastrous worldwide economic crisis begins, do you think
that such a lesson would teach the people (finally) that only a Gold standard
can prevent such an event to happen again and that the Gold Standard
will/must be re-established? What alternatives would we have and could be
thought of?
David Morgan: The greatest lesson of
history is that people do not learn the lessons of history. So no matter how
people think after the "crisis" hits them in the pocketbook at some
future date they will forget eventually. I am not sure a gold standard will
be re-established. I think we may see a two-tiered system where only gold is
accepted for balance of trade payments between nations but the
"fiat" is still used by the citizens within each nation-state. I
wrote about the "Amero" in my January
2006 issue and now that word is appearing on the Internet. My readers were
well aware of this "new" currency well before the general
population.
People are very ingenious and you will see private
backed money such as goldmoney.com and many other precious metal backed
Internet currencies. Communities will start their own currency systems,
barter in some cases does work but not to a great extent. The proposal by my
friend Hugo Salinas Price in Mexico provides a method for silver to circulate
along with the unbacked peso and if people would
actually really study every word in the proposal rather than simply refer to Gersham's Law they might understand how this could become
a reality.
Silberinfo: If Gold is
being re-monetized in the near future within a Gold-Currency-Standard, do you
think it would be a good idea to re-monetize silver as well? What about
platinum and/or palladium or even oil? What's the difference to all those
metals and commodities when wanting to implement a "new"
currency-backing standard?
David Morgan: Quite a question… The
truth of the matter is that the only system that has proven to work the best
in the past is bi-metalism. That is a gold/silver
standard where both are used as money together. Gold is a check on the amount
of receipts (currency issued) and silver if NOT fixed to a specific ratio but
rather set to the market conditions then silver checks the gold price. I do
not have time nor am I in the mood to go through all the reasons but even the
Wizard of Oz was used as a metaphor for the bankers going to a pure gold
standard. What history tells us is that a gold only standard is only one step
away from the banks regaining control and putting the fiat system back into
place and the cycle repeats. If you really look at stability you will see a
three metal approach. Gold, silver and copper each freely trading against
each other based upon the free market and no outside influence. With the
recent ban on melting copper or nickel people should wake up to the reality
of why coinage is important.
Silberinfo: Everybody knows
that every empire in the history of the world has collapsed so far. What are
the influences that make the US-Empire collapse as well?
David Morgan: Truth or resistance to the
truth. The world and perhaps the United States in particular has a void in leadership. The only way out of any problem
no matter how big is a clear recognition of the problem. The simpler and more
succinct the problem is stated the better it is for everyone. Because once
the people understand the problem they are very resourceful and will do what
is in their own best interest and subsequently this becomes in the best
interest of everyone else ironically.
However, no leader today is about to say the United States
cannot print itself out of this mess it will only be after it is apparent to
the financial markets will the obvious be stated. Even at that--- the real
cause --a dishonest financial system will be only available on the Internet
or Free Press, the mainstream is likely to blame the speculator or hoarders
or "selfish" investor. This is far from the truth because the
United Kingdom was once the most powerful nation on earth under the pound
sterling when their money was honest, when the British went off honest
weights and measures the world went to the United States because up until
August 1971 the U.S. dollar was gold backed internationally (not
internally-although silver was backing the U.S. dollar until 1965).
So will a collapse come? Yes but it will probably
come in a different way or manner than anyone suspects at this point. It may
be a subtle as some real estate investors getting wiped out, pension funds
not paying on their obligations, social programs being moved out ten years in
the future, retirement age being moved further out, families upsizing
(grandparents/parents/children all living under the same roof), and
outrageous prices for food, energy, and shelter. Very little investment is
real productive capacity most "investment" simply going to keep the
"system" from total collapse. On the other hand out of great stress
many great things have happened. When things are good and people are
complacent little progress is made, so with all the tension in today's world
I still remain open minded that we face one of the most if not the most
interesting times in all of history! Never underestimate the ability of the
human spirit to soar under the most adverse conditions.
Silberinfo: If the
US-Empire is collapsing and ending now, and if because of that (most of) the
currencies, markets and economies worldwide enter into a crisis as well (as
globalisation has brought "dependencies"), and the major nations
worldwide will decide on returning back to some sort of a Gold-Standard, it
is clear that those countries will prevail and start rising again strongly
that have gold (officially or unofficially). Therefore, do you think that the
US
didn't sell its gold reserve for that purpose and to have "real"
assets "of last resort", but act in a way to make other central
banks sell their gold to weaken potential future rival currencies?
David Morgan: Let me start by stating
all I am going to say on this is pure speculation/conjecture and to take my
view lightly because the fact is I do not know. What I do know is the adage
"The Golden Rule" that "He who owns the gold makes the
rules." If the U.S.
really does have approximately 265 million ounces of gold bullion then of
course it would or could become the ultimate place to invest.
However I do not think this is the case much
speculation has gone on about how the U.S. gold eventually ended up in
the hands of the Central Banks. As much gold as has been lent, swapped,
"loaned", collateralised or in some other way used as a derivative
for some other application it still must be remembered that the banking
system still owns a great deal of gold. Much less than perhaps 30 years ago
but still a great deal of gold. This is not true of silver anymore; almost no
government owns any appreciable amount of silver.
So in my view the question becomes one that GATA has
been very interested in for some time. Let's all find out how much gold the U.S. really
has - that is do a full accounting. If it turns out the U.S. has the
gold they report then fine, if not well I will leave the consequences up to
you to figure out.
Silberinfo: How do you
analyse mining and explorations stocks? What criteria do you apply, and what
models do you use for the valuation of their projects and assets?
David Morgan: Basically two ways, the first is for
producers and this is a standard financial model based upon net present
value. We want to see how profitable the mining company is or is not, what
potential is has for growth and what political risk does it have due to
location. Of course we look at management, the mission statement, how liquid
the company is and the balance sheet. These are companies that fit into our
top of our Asset Allocation model. This is a dynamic list and does change but
most the companies that are able to achieve this level in our model are solid
and make good investment sense as long as the commodity bull continues.
The junior sector is almost impossible to apply any
exact analytical model at least that we know of and we have tried. Mostly
these are story stocks and we do our best to investigate the management,
financing, location, underwriters, past history, promotion budget, previous
company affiliations, what others in the industry have written, if the
project or projects are open pit type or underground potentially. We do not
focus too much on how many ounces per share because it can be useful but only
when comparing similar situations for example some of the best investments
are underground mines but based on ounces per share an investor would miss
out entirely on this when in fact the company share price soars. There are so
many misunderstanding on how to evaluate a project it is impossible to
address without spending hours in an educational environment. We also look at
the metallurgy and infrastructure. Certainly this does not cover everything
but picking juniors is much more of an art than a science and in my view will
always be that way.
Silberinfo: Do you visit
the projects of companies you analyse?
David Morgan: In almost all cases either
myself personally or one of my associates will visit the project. This is not
always the case but most often it is what we do for our readers. The top
companies in the Asset Allocation Model we really do not visit because their
reporting requirements are so strict that a good financial analysis is
usually sufficient.
Silberinfo: What do you
think about the promotional campaigns of explorers? Are some of them
exaggerating in an illegitimate way just to raise enough capital?
David Morgan: I am somewhat
neutral on promotions, you need a certain amount but an investor needs to
look at the extremes. If a company only promotes and does not drill then it
is close to a "pump" shop, if a company only drills and does little
or no promotion then the investors are getting somewhat of a disservice. So
what is exactly the correct mix, it is hard to say there is no exact way to
balance the two each company is different and we evaluate each that
way-meaning individually.
On the second question, this happens and will
continue to happen, it is part of the business and most of the time the
"potential" or "possibilities" far exceed reality however
most of the investment that comes in early is from investment houses and
brokers and they fully understand the "game."
Silberinfo: The silver
market is volatile. Do you attempt to trade tactical positions in mining shares?
If yes, what criteria and models do you use to see, if there is a short-term
market top/low?
David Morgan: We do send out
intermediate signals to our paid subscribers. There are many criteria and we
do not really divulge them but you can see our track record in a recent
article posted for public viewing called: Timing is
Everything-
This concludes the interview.
By: David Morgan
www.silver-investor.com
Mr. Morgan is a
contributor to Mining Industry Review an e-TV program, available at FreeMarketNews.com He also hosts a weekly Metals Wrap up each week on the Financial
Sense Hour see www.netcastdaily.com/fsnexwshour.htm
Mr. Morgan and has written numerous articles, his e-mail newsletter, The
Morgan Report is issued on a monthly basis and includes economic news,
overall financial health of the global economy, currency problems ahead and
the reason why people need to be invested in the precious metals. His website
is www.silver-investor.com. His
book “Get the Skinny on Silver Investing” should be available
shortly.
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