Interview David Morgan by www.silberinfo.de, Published August 29th 2005

Exclusive Interview with David Morgan

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

If you wish to distribute the interview to other websites, please contact team@silberinfo.de

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 8^th and 9^th 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 2005

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