Silver Investor David Morgan: Conspiracy Facts Show Metal Prices Have to Rise

Even in a frozen metals price market, it only takes one event to shake off the paper manipulation keeping prices below what supply and demand fundamentals of a free market would dictate. And when that correction comes, it could happen quickly. In this interview with The Gold Report, The Morgan Report Publisher David Morgan shares his favorite ways to own leverage to metal prices upside while protecting against junior mining risk.

The Gold Report: You and David Smith recently wrote a piece titled "Gold and Silver: Heading for a Blue Screen of Death Event." You compared the gut-wrenching panic of suddenly facing a computer that stops working with a precious metals market that seems frozen, in the case of gold, in sub-$1,200/ounce ($1,200/oz) limbo. But then you suggested that, like a Windows operating system, the metal could be rebooted on its way to once again hitting $1,900/oz. What would it take for something like that to occur? How do you hit Control-Alt-Delete on a commodity?

David Morgan: The retail silver market is very tight and getting tighter. India has historically imported a great deal of silver. As the country became more prosperous and started building its middle class, more gold started going there as well. On the supply side, low prices are detrimental to the recycling of silver so there is less recycling in the market. It has been reported that it is virtually impossible to get gold in size off of the London Bullion Market, yet the prices don't reflect that tightness.

TGR: What is keeping the prices down? What is causing the blue screen of death?

DM: That is tough to answer without treading on the conspiracy theory realm. I don't like to deal with conspiracy theory. I like to deal in conspiracy fact. The fact is that the futures markets allow massive amounts of paper contracts that represent silver and gold and, for that matter, other commodities such as wheat or corn, to be manufactured at will for speculative purposes. That satisfies the demand without changing the real supply. Someone could buy what they think is a physical amount of metal through a major broker-dealer, but in reality only hold a claim on the underlying asset. This is fairly pervasive throughout the precious metals industry.

The Dutch bank ABN Amro had stored gold for clients for multiple years, and when the bank got into problems, the clients were informed that they would have to take a cash settlement for their gold. The Texas Teacher Retirement System has requested gold be delivered from the Federal Reserve to Texas. That's "in work" and could put more pressure on the paper gold problem if it doesn't materialize. This problem has come to the fore several times, and yet it has not yet disrupted the market. However, I think that day of reckoning is closer because there is more of this going on and the premiums are so high. That is a direct indication that prices are not reflective of the true supply/demand fundamentals. However, to be fair, the premiums can come back to "normal" once the market quiets down.

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David Morgan will be presenting at The Silver Summit & Resource Expo on November 23-24, 2015 in San Francisco. 
Pre-registration is available now at www.cambridgehouse.com