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« India Will Dominate the Silver Market in 2013 | Main | Louise Yamada - 2 Fantastic Gold, Silver & Mining Charts »
Friday
Oct042013

The Precious Metals’ Bullish Case is ‘Written in the Rocks’

In this mornings mail bag we have this interview with Jim Goddard and David Smith of The Morgan Report very kindly sent to us from our good friend David Morgan whose contact details are below

The Precious Metals’ Bullish Case is ‘Written in the Rocks’

David H. Smith/Silver-Investor.com   

(Source: HoweStreet.com 9/24/13)

Jim Goddard:             My guest is David Smith.  He’s the senior analyst for The Morgan Report, which you can find online at silver-investor.com.  Welcome to the show, David. 

 

David Smith:               Good to be back, Jim. 

 

JG:                              The U.S. Fed has made what I call the non-announcement.  They didn’t do anything.  That spurred the markets momentarily, but now what’s the state?  People are saying they sent both a bull and a bear message.  Where do we sit, David? 

 

DS:                  In the market there are always two sides.  There are the bulls and the bears, and at some given point in time, one side is stronger than the other.  Last week – it was actually the day you and I spoke – the Fed announced, as you mentioned, that they weren’t going to cut back on the money they put in to try and stimulate the economy. The market had been declining for a week prior to that on the assumption that they would.  So, we had one of the biggest one-day up moves for gold in several years…

Gold stocks put on a record volume day in terms of the indices, but now we’ve seen an awful lot of that given back, and people are discouraged again.  The bulls are thinking, “Well, we’re going to see new lows.”  But I think that if a person still believes in the bullish case - which I do - it’s important to realize constantly that you have to do the opposite of what most people think is going to happen.  For example, on the day before the announcement, the day you and I talked, I purchased a couple of mining stocks at very good prices, and I bought shares in a leveraged silver ETF when silver was down 49 cents on the day.  By the close, it was up almost a dollar and a half. I certainly felt better buying 49 cents lower than $1.50 higher! 

I haven’t done anything since then, and I’m not going to do anything until we have this resolved, what some chartists call the “get nowhere prices” between the highs of a couple of weeks ago and the lows last Wednesday.  We’ll just have to see how things play out.  It hasn’t changed my view on what I believe will happen. As the Canadians would say, “It’s written in the rocks.”  That’s the way I feel about the bullish case for the precious metals. I’m not going to be swayed every time J.P. Morgan or Goldman Sachs says something -which is just talking their book - and then cause me to change my mind based upon people who have never had my interest at heart in the first place. 

 

JG:                              One of your pieces of advice has always been, don’t pay attention to what the big players are doing, because they’re just playing you. 

 

DS:                              That’s really true. Whether it’s George Soros or any of the big trading houses, when an article comes out about what they’ve done, it’s usually something they did several weeks before.  We’re interested in our own portfolios. We can’t try to piggyback onto what they’re doing and expect to have anything.   The idea is to establish your core position, decide the ones that you really like and then don’t keep adding to them just to have some market activity.  If there’s a compelling reason for you to buy some more of something, then do it.  For me, it’s a quality company that’s trading at a price I think is ridiculously low.  One of the companies I bought at $9.00 rose to $16.50 over the last few months, and now it’s trading around $12.00. 

I’m not going to add any more of that company unless it gets down to $10.00.  I’m not going to buy at $12.50, thinking that somehow my behavior will influence the market, because it won’t.  It’ll just deprive me of more capital that I might be able to spend if I get a price that is really, really low again. 

 

JG:                              You feel it’s important for people to still stick to that old fundamental thing, to have a core position and stay with it. 

 

DS:                              Definitely! I love this comment from Stu Thomson in his Graceland Updates.  He says (direct quote), “Only losers try to trade their way through a bull market with core positions.  They end up at the end of the bull with nothing.  Winners grip core positions tighter in corrections and add to positions.”   So this is what I believe you need to consider doing. 

If you have money to add more and the reasons are compelling, you do so.  If you don’t, you sit there, and stay in the present. Then focus on what’s going on now in your life - by strengthening your relationships, going to the gym, eating properly, and getting enough sleep. Remember that we all want to see much higher prices for the metals and I believe we will. 

 

But, the time it’s going to take to get there will never come back to us, so let’s live in the moment while planning for the future. Avoid the Midas curse, where King Midas got to the point that he was so entranced with getting gold that even when he touched his own daughter and she turned to gold, he was only mildly upset about the whole thing.  Definitely, focus on that golden ring, so to speak, but don’t let it dominate your life to the point where you can’t feel alive until you arrive. Otherwise, I guarantee that when you do get there, you will realize that it wasn’t worth the price you had to pay. 

 

JG:                              Do you expect India or China to make another one of those moves where – remember when gold had that tremendous drop over a weekend?  The big players decided to dump gold to see if they could get the price to fall so they could buy it all back again lower.  Are we going to see something like that again, or do you just have to hope it doesn’t happen? 

 

DS:                              The gold dumping was done primarily by Western entities, and regarding the purchasing of that gold, the indications are that it was done primarily by Asian entities.  So, if the price were to drop again, I would expect to see very strong physical buying by the Indians, the Chinese and by those in the West who are smart enough to know that the longer term trends are still intact. What you do, is to buy declines, hang on when prices go up, and perhaps sell lightly when the price goes up very strongly. 

 

JG:                              I heard that China is buying so much, that by the end of the year they’ll be the biggest holders of physical gold in the world. 

 

DS:                              That’s probably at least a few years away, assuming the United States has all the gold in Fort Knox they claim to, but certainly China is a force to be reckoned with.   And look at Russian purchases.  Virtually every month for the last several years, they’ve added judiciously to their gold holdings. They are pretty transparent about it.  The Chinese are much less so, but both of these countries are storing away more and more of what for thousands of years has been considered to be real money. 

 

When the day comes that confidence evaporates from our markets globally, with all the things that are going on, there will be a rush into gold and silver that’s going to be amazing.  I think people who get shaken out with what’s going on now and lose faith -  I understand that, because it’s been a hard couple of years - but if they get shaken out, losing their will and then prices go where I believe they’re headed - these same people are going to be pretty upset. 

We can’t even predict things from minute to minute, let alone hour to hour, but the major trend always reasserts itself at some point.  I abide by a four-word phrase, which the late Stanley Kroll - who was a very successful commodities trader in his own right – followed when establishing a position. He simply said, “Be right and sit tight.” – Which is exactly my strategy.  Our listeners may feel it’s in their best interest to consider doing the same. 

 

David Smith is the senior analyst for TMR (The Morgan Report) Money, Metals, and Mining--You can find more information at  YouTube  or Twitter  To receive a 30 day Free Trial to The Morgan Report, sign up here

Disclaimer: The topics discussed above are being provided for general information purposes only. Any action taken as a result of reading this independent market research is solely the responsibility of the reader.  Before taking action on any investment, you should consult with properly licensed, experienced and qualified investment advisors. In today’s volatile marketplace, assume that the risk you take on any investment can be 100%. 

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