Now Is The Time To Enter The Precious Metals Markets

The Gold Report released an interview with David Morgan covering mainly the gold and silver outlook for the year(s) ahead. In sum, with four decades of experience in the precious metals markets, David Morgan believes the bottom is in for the metals. He is expecting silver to outperform gold, going forward. His message on the Cambridge House Investment conference in Vancouver will be that now is the time to enter the market (not exit).

The factor(s) that will push silver to $100/oz, presumably in a three or four years timeframe, according to David Morgan:

What’s going to push it to that level are fundamentals. There is no change fundamentally in why investors would buy gold in 2001 compared to why they would buy gold in 2013 or 2014. The fundamental fact is that there isn’t a nation state on earth that has a handle on the debt problem. Because of that, we’re going to see more people wake up to the need for precious metals, because precious metals are true money outside the framework of the current system.

The correction we had in silver and gold isn’t that abnormal in a major bull market. I’ve been through one bull market already in my lifetime. I watched gold go from the fixed price of $42.22/oz up to $200/oz, then to sell off to around the $100/oz level. It later advanced all the way back to the peak of $850/oz in January 1980. I have seen the damage a big shakeout in a major bull market can have. That experience makes me a little bit more hardened to weather the storm we just experienced.

However, I think that the worst is over. I think silver has bottomed. Gold probably has as well. This year, 2014, will be a rebuilding year. Depending on what happens in the global economic system, it’s possible that we could even see a very good year for the metals, but I don’t anticipate that. I’m anticipating a rebuild year where silver climbs back over $30/oz and gold travels up well over $1,600/oz, probably to the $1,700/oz level or higher depending on how the economy unfolds.

Whether silver outperform or perform independently, in case gold would go to $2,000/oz in 2014:

I have studied this issue as much as anyone other than The Moneychanger author Franklin Sanders. A 45-foot long historic silver chart covering the last 4,500 years, where each foot would be 100 years, shows that only in the last 19 inches the silver-gold ratio would be above 16:1. The 4,400 years before that, it would be less than 16:1! So, from a long-term perspective it means silver is undervalued to gold. Yet, let us agree that for the current time frame it has much less meaning.

My point is that the ratio tells you which metal is doing better relative to each other. The ratio was 80:1 when the silver bull market started, and it’s basically 60:1 now. That means as volatile as silver has been, from the start of the bull market, if investors put the same amount of dollars into gold or silver, they would be better off putting it into silver. I’m not advocating that. I think investors should own both gold and silver. But, overall, I believe silver’s outperforming trend will continue.

Now Eric Sprott believes in the monetary classic ratio of 16:1 ratio and thinks the metal will eventually return to that level. I think the ratio will at least test where we’ve already been in this bull market, and that’s about a 35:1 ratio. We’ve already been there very, very briefly when silver did its big magic jump from $19/oz to $48/oz in 2011. In the meantime, we’re looking at more volatility.

The number precious metals miners that is expected survive and experience the next upleg in the metals will be limited:

I’m probably not the best to ask because we focus mostly on top-tier and mid-tier companies, companies that are producers or near producers. We do study a great deal of the junior exploration sector, but suggest very few. If I would venture a guess, of the micro-cap companies—$0.5–3 million—probably half will survive, maybe fewer than that.

It has been very difficult in the precious metals sector over the last couple of years. Even some of the best companies—I am thinking of one recently that has one of the richest gold mines in the world—can be mismanaged. That is why with some of these companies I tell people to only risk money they can lose because the payoff can be great, but they can lose it all, too. And some of my readers thank me for it later. That happened just this morning.

The message that David Morgan will give people at the Cambridge House Investment conference in Vancouver:

The bull market is not over and it’s normal in these secular bull markets to shake off some bulls and reach the status that we are currently at where the sentiment is very low. There is a lot of distrust and a lot of people are questioning whether they should be in the sector. Those are signs that the bottom is in. Now is the time, for those not in the sector, to get in. For those already in, either hold what they have, add to their position or ride it out. A couple of years from now we’re going to see much higher prices in the precious metals. Three or four years out, it may be overvalued in real terms, but that remains to be determined.

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