An Update on Gold, Silver and Inflation With Dave Morgan and Jeff Christian

On a recent edition of the Financial Sense Newshour, Jim Puplava hosted a roundtable session with Dave Morgan of the Morgan Report and Jeff Christian of the CPM Group. These precious metals experts covered everything from the boom in gold, why silver could be going up and the role inflation could play going forward. See below for excerpts from their interview on the Financial Sense Newshour.

For audio, see Special Edition Precious Metals Roundtable With Jeff Christian and Dave Morgan.

Jim Puplava: I can’t think of any technician who hasn’t been bullish on gold. Has that transferred into buying gold coins and bars? And how does that compare to what’s going on with silver?

Dave Morgan: I agree. I do technical work, though I don't base The Morgan Report totally on technical analysis, but I was pretty heavily trained in it. So, to reiterate what you're probably sick of hearing, but the 1550 level is critical. We finally broke through that. I think it took six years or so, but once we got through that, then we hit another level and technically gold looks very positive.

We are seeing what I call the psychological effect that really never leaves gold. It ebbs and flows. Sometimes it's low, sometimes it’s high, but it's always a way to preserve wealth. It's almost a guarantee hedge against the economic system at large. It's something that I think Jeff has actually done some of the best analysis showing that a really balanced portfolio holds a larger percentage of gold than most professionals are willing to admit.

So, gold’s very important, but silver technically, is very difficult to look at. It’s been doing well in the past few days. If it's just now touching into what I call an indecision pattern, or a channel formation that helps for several months, as Jeff mentioned, at the top of that channels around the $19 level.

I've had several interviews over the last couple of weeks, where people asked when silver is going to go and I say after it goes above 1850. And after it stays and moves upward from there, I will have to say based on the commitment of traders and the amount of market participation, it could do it, but I'm not holding my breath. It is good to see it move and move robustly, which it does. It's nice to see it outperformed gold on a temporary basis whether this is sustained or not, again remains to be determined.

I think we've got to see the 1850 level really gain some momentum. If you look at what's happening, it's always based on monetary demand or investment demand. When some percentage of people look at silver the same way they look at gold – as a wealth preserver or wealth builder or safe haven – once that comes into the market again, then you're going to see more sustained moves in the silver market that hasn't happened yet.

With the exception of Scott Maynard, who was interviewed at the Davos meeting not too many months ago and was asked by Bloomberg, ‘What was his number one go to investment for 2020?’ And he said silver, and I think the Bloomberg guy almost fell off his chair. He said, ‘silver why not gold?’ And Scott said, ‘Well, gold's pretty near its all-time high, but silver is way undervalued relative to gold.' And then the interviewer asked, ‘Do you think it could do something parabolic like the Palladium market?’ And Scott actually said, ‘I think it's a possibility.’

So there's someone in the investment community that's very knowledgeable who's positive the silver market. And if you look at the flows into the ETFs, they've been rather significant. I think investment demand is coming back to silver and that's the driver. If you could tell me ahead of time how much that investment demand is going to take off in 2020, I could give you a lot better projection and what the price profile would look like.

JP: We’ve seen a lot of hedge funds move in and out of the GLD space. Jeff, what are your thoughts on coin buying?

Jeff Christian: That's one of the biggest concerns that we've been talking about, really for about nine months now. You saw the gold price started rising in late June of last year and the silver price too and if you look at what was going on, really starting in late June, but even up until now, most of the buying that you've seen that has propelled gold and silver prices higher, has been in futures options forwards and an ETFs. And not just the ETFs that buy physical metal but also the leveraged ETFs, you've got a lot of short term, technically driven, opportunistic investors who are taking advantage of what they see as positive chart patterns and they're buying silver and gold derivative products, you know, futures forwards options and ETFs.

They're not necessarily buying physical gold and silver. The physical investors who buy gold and silver because they're worried about the state of the world and they're worried about their own economic, political and social wellbeing. They have been largely absent the gold and silver markets the last couple years. They came back in a spurt in March as the global lockdown emerged. But that was a flash in the pan.

In April and in the first half of May, there hasn't been a lot of follow through in the physical demand. What you're seeing is gold and silver prices rising based on short term of buying in the futures and ETF markets and you're not seeing the kind of long term physical demand in it for gold bars and coins that would suggest a more sustained upward move at this time.

We think that they'll come back at some point because we think that economic and political conditions will get worse from here. But until we really see a sustained return of physical demand for gold and silver from investors, we're not convinced that you're going to see silver you know, significantly over $19 or gold significantly over 1820.

JP: In 2008 and 2009 people thought we’d see inflation after the Fed increased its balance sheet, but we didn’t. Now, the Fed’s increased its balance sheet by 2 trillion in two months, what does this mean for inflation going forward?

DM: I think this is the most important point I can make individually but it's broad based. Going back in my history, I've done a lot of resource shows but also done a lot of what I consider mainstream investment conferences like the Money Show. I was there once many years ago and I basically made the argument you just made, but it was at a lesser level, because even QE to me was rather alarming. It was nothing like what you just outlined.

However, I brought this up, it happened to be a gentleman that was the head of the Certified Financial Planners, and he listened to me. I could tell from his body language that he really didn't want to hear the story. He probably knew it, he just didn't want to get participation from the CFPs to basically recommend the gold position. Well, I give you that background and say this, I have been inundated. I have been approached by more than one where I've actually lectured here from my office to CFPs that are taking the gold market much more seriously than they ever have. And if you take the adjunct to that, it's the pension market.

There again, no one wanted to touch basically anything I had to say about a hedge position in the precious metals. Now, I'm getting interviewed, consultations, inquiries and this is the idea for me at least that, you know, 1% or so of all financial assets in the silver market, and it's rather small, laughably so.

If you started moving a fair amount of money into those precious metals markets, regarding the reason you outlined, Jim, I think you could see a substantial move. And it is possible that you could get a situation where, maybe not through the COMEX but through the dealer market, where you might see congestion that took place for a while. If some of these entities wish to actually go and touch their product, it could have a substantial demand.

Actually, to go one step further, you know, I'm allowed to have my own opinion; I think it's destined to happen. Now, how does it turn out? Is it similar to January 21, 1985? I would kind of say probably. I think you'll get exhaustion at some point. You get that parabolic moves, and everybody's brother in law’s cat wants to get in the gold market. But there are only so many, and we are at a very low level. My little office perspective here with, you know, family offices and small hedge funds and some pension planners and some certified financial planners, but I've never had it at the level I'm having it now.

JC: I want to take a slightly different approach to your comment. Last year and to some extent, in 2018, there are all these people who kept saying we’re in an inverted yield curve. Every time since WWII to 2008, an inverted yield curve is either coincided with or preceded a recession, therefore, the world's going into a recession. We were saying no.

In fact, we didn't have a recession because of the inverted yield curve. We had it because of the pandemic. The reality is the monetary changes that occurred in 2008 and 2009 going forward and 2010 and 2011 were very important because you had the European debt crisis and the downgrading of the Treasury. That has changed the monetary system and the financial system in ways that means that everything that happened prior to 2008 is not a good precedent.

So those people who were looking at a model that said, ‘Oh, inverted yield curves correspond with recessions from WWII to 2008,’ were looking at an obsolete model. And it's not just what happened in 2008 and 2009 that was radically different from anything we've seen before. Everything since that time, has been radically different and we're in a radically different system.

Now, massive monetary accommodation, massive fiscal sovereign deficits and growing debt cause a lot of problems. We were telling people all that monetary largess in 2008 or 2011 did not necessarily mean hyperinflation, and it didn't occur in general inflation. It occurred, as you said, in the equity markets and bond markets.

I think going forward, that is the operative model. So, we've seen this massive monetary accommodation and this growth in fiscal deficits and debt. I think that that will continue to cause inflation in financial markets, but not in general prices. General prices I think are facing disinflationary and deflationary conditions that are probably much more problematic than inflation. So I think that you're in a different financial system than anything that preceded 2008. And that means that all of these intermarket relationship ships are different now than they were before.

To listen to Dave and Jeff's full roundtable interview click here or for an archive of past shows, visit our Financial Sense Newshour page.

If you're not already a subscriber to our FS Insider podcast where we interview book authors, strategists and industry experts from across the globe on all things economics, finance and markets...

Click Here To Subscribe

To find out more about Financial Sense® Wealth Management or for a complimentary risk assessment of your portfolio, click here to contact us.

About the Author

fswebmaster [at] financialsense [dot] com ()