The Morgan Report Update on the Silver Market

This update will be brief in words, but the main intent is to objectively look at one of the most powerful yet volatile markets –THE SILVER MARKET.

I gave this part of the update a great deal of thought, initially thinking perhaps a daily, then a weekly, and finally a monthly chart with annotations would be the most valuable to you. However, my conclusion was to be so precise and accurate that the sheer simplicity would not only provide confidence that the bull market is intact, but historically the move we all experienced with a great deal of grief is not all that unusual for silver.

The Graph below shows three ovals that are historic fact of sharp sell-offs in the silver market. The one we are now experiencing is a bit different because it came after a long consolidation period, but much more importantly it is taking place only in the paper market. The other two sell-offs were sharp fast and in both cases you could acquire real silver near the futures (paper market) price.

Right now I do not want to be too bold because I know how quickly things can change in the silver market, but so far almost all of the input I have received from around the world is that physical silver is not only hard to obtain in many instances, but the price is much higher than the futures price.

Below is an excerpt from my friend and fellow silver bull Franklin Sanders. Franklin and I speak fairly regularly and we have provided each other with some more esoteric aspects of the silver market from time to time. The entire article can be found here: http://goldprice.org/silver-and-gold...

Excerpt from Franklin’s Article

Either This is the Greatest Silver and Gold Buying Opportunity of All Time, or the End of a Bull Market

Twenty-eight years brokering silver & gold have not prepared me for what I met this morning. One of my wholesalers said he was not selling anything, only buying, until further notice. Another refused to give any prices until he adjusted his spreads. Another was spreading one ounce gold coins, normally at $7 - $8, at $25. Another said he was making no sales for immediately delivery or deferred payment, only sales for 30 days delivery paid at once. Premiums were high: Austrian 100 coronas, 4.7%; Sovereigns 5.2%; Krugerrands 6.8%, American Eagles 8.2% (none for immediate delivery), & Mexico 50 pesos 4.5%. 90% silver was at $9,783 a bag, a whopping 6.7% premium (1368 cents an ounce on a 1282 market!). Silver American Eagles for 6 - 8 week delivery, 1586 or 23.7% premium.

But "premium" is only one way of looking at things, dividing the item's price by the spot silver price. Another way to view it is that physical prices have de-coupled from paper prices. The paper prices -- futures, ETFs, etc. -- no longer rule the market.

Physical prices are declaring their independence from paper pricing as those holding physical gold & silver refuse to sell it at prevailing paper prices. I have been expecting this to happen toward the top of the bull market, catalyzed by some paper purveyor's failure, but now? What can it mean? At the very least, the public is nourishing a gigantic hunger for silver & gold in their hands, and no place else.

By now all the leveraged silver & gold longs have been forced out, just as all the dollar shorts have been chastened, bruised, and beaten away. Either this is the greatest silver and gold buying opportunity of all time, or the end of a bull market.

But it is NOT the end of a bull market. Time alone argues that. A bull market runs 10 - 20 years, this one has run only 7, since 2001. Those who think silver & gold have fallen into the "bursting of the commodity bubble" completely misunderstand what drives them in the first place. Silver & gold are not commodities; they are money.

End of excerpt…

Here is our long-term look at the silver market. Gold established the low in 2000, but silver actually did not begin the major bull market until 2003, in fact the very few subscribers I had at the time can verify I called the beginning to the correct month before it happened. Enough back patting—I expect a bottom to form in both silver and gold rather soon.

First, I need to give you the changes to my current thinking. For many months I thought that gold and silver would be nearing the March 2008 high of roughly $1000 gold and $21 silver. Because of what has taken place the past five trading days, I have revised that! Currently I see the silver market moving back toward the $15-$16 level by the end of the year as a minimum. We should experience resistance in this area.

However, my fundamental analysis is many investors will come into this sector beginning in September of this year and this will be the beginning of the next leg up for the precious metals. Furthermore, I still expect to see new highs for gold near $1250 and $25 silver by May 2009. Inflation continues unabated even as the mainstream continues to play down and report bogus inflation data. Nothing, Absolutely nothing does better in an inflation that SILVER!! See article below…

Inflation Pace Is Fastest in 17 Years
By BRIAN BLACKSTONE
August 15, 2008

U.S. inflation accelerated in July, as prices rose 5.6% from a year earlier, the fastest pace in 17 years.

The consumer-price index rose 0.8% from June, reflecting increased prices for food, energy, airline fares and apparel, the Labor Department said Thursday. That followed a rise of 1.1% the month before. Core inflation, which excludes food and energy, advanced 0.3% for the second consecutive month and was up 2.5% from a year before. That is well above the Fed's "comfort zone" of 1.5% to 2%.

"A truly ugly inflation report," said Harm Bandholz, economist at UniCredit Markets and Investment Banking, in a note to clients.

Let me wrap up by stating that this market has been extremely difficult for all of us, and many times I have stated how difficult it is to ride the bull market. The BULL will do everything in its power to shake you off. In is my very studied opinion that now is the time to hold on tighter and ask yourself if you were to sell your precious metals positions, where would you place the money? Housing? The Dow Jones? The Bond Market?

The next issue of The Morgan Report will feature my interview of David Bensimon and it should give assurance to all that we both think the bull market is intact and that far higher prices are ahead for silver, gold and related precious metals investments.

Sincerely,

David Morgan