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Mike Gleason: It is my privilege to be joined now by David Smith, senior analyst at The Morgan Report. David, it’s always great to have you with us. How are you?
David Smith: Very good, Mike. I enjoy coming back.
Mike Gleason: Well, as we’re talking here on Thursday morning, we’re seeing the metals holding up quite well under the circumstances, and especially given the recent strong advance by the sector. Prices have pulled back some, and maybe we’re seeing a pausing of sorts here after the big run up that we saw immediately following the Brexit decision. But silver is $3 an ounce higher today than it was essentially 3 weeks ago, if you go back to the day before the Brexit vote. Coming into this week, we had 6 straight weekly gains in silver. So the question on nearly everyone’s mind, David, is does this rally still have legs? If you think it does, what makes this one different from rallies we’ve had over the last 5 years that have always seemed to fizzle out rather quickly?
David Smith: I believe it does have legs, Mike, and I would temper that by saying we’re in the middle of the summer season which usually is quite soft for the metals, and it wouldn’t surprise me at all to see backing and filling in here, and maybe even substantial short term decline going into August itself, and then getting stronger into September. But we’ve had 6 or 7 months of amazing movements upward in the mining stocks, and very strong action in gold and silver, as you mentioned. And I think what’s interesting about this is the way it came off of that 4 and 1/2 year cyclical bear market low and it surprised a lot of people, and a lot of analysts were even getting in and out and kept watching, or whatever, so it’s been frustrating and fascinating for people, and the main thing has just been, I think, for metal holders, to buy in tranches, and if they’re going to do it every 30 days, or when they have extra money or whatever, but not to try to wait until there’s some magic point where you would suddenly take or add to a position.
Just do it calmly, knowing that this is long-term trend, which has now moved to the upside, and the squiggles will bother you less if you simply come up with your plan and then adhere to it.
Mike Gleason: There does certainly seem to be somewhat of a sea change here and optimism seems to be warranted, at this point, based on what we’ve seen.
Why do you refer to the 2016 gains in the metals as the “Trump Rally?”
David Smith: Well, because looking at Donald Trump’s political accomplishments, without being on one side or the other, in terms of making value judgements about him, is that all the commentators have been wrong. They didn’t think he was going to even get out of the gates, and here he is looking like the presumptive nominee in the Republican Party. So he was continually underestimated and belittled and all this sort of thing, and he may or may not make it to the presidency, but I think he’s gotten further at this point than almost anyone could have imagined.
And I think it’s the same way with the mining stocks. Sometimes we try to analyze things too much rather than just sitting back and watching. Maybe think we know more than Mr. Market does. If we give Mr. Market the benefit of the doubt, and just watch and listen, we can learn a lot more than trying to interpret every little squiggle on the charts sometimes.
Mike Gleason: Speaking of the charts, our mutual friend, Steve St. Angelo, at the SRSroccoReport.com wrote an article about how silver is flirting with a sustained breakout above its 50-month average, which is sitting at around $20.35. Why would this be a major level, and what are the key levels above that?
David Smith: Well, this area has been one that has contained silver prices for quite a while, and if you look at the path that silver took from almost $50 in 2011 to its decline down into the low teens range, you can see a series of areas where on the way down, it would stop and find support, and then breakthrough that. And that was the theme from 2011 right up until last winter, and then (it) started changing with base building in silver and gold made – the physical prices – in December. And then then confirmation with the mining stocks themselves, which if you want to put a date on it, I think it was January 19th that we really saw confirmation because a lot of these mining stocks made temporary intraday lows, then reversed on higher volume and moved higher, and they’ve never really looked back.
All the quality mining stocks now have made very large gains, and the metals have gone along concomitant with that. So they’re both moving in the same direction, and I think it’s very fascinating. It really, I think, tends to prove a lot of credence to David Morgan’s view that we are now entering into the last big secular leg of this market, which probably will go on for several years. It could go on even more than 3 or 4 years, but it’s going on for a while. And it will carry prices eventually into a phase that will be a public mania phase, where people will be attempting to buy the metals and they won’t be able to find them, and when they do, the price will be inordinately high, not only in terms of the actual nominal price itself, but the bid-ask spread will go much, much higher than it is today.
Mike Gleason: Expanding back on my first question about does the rally have legs, it sounds like there’s a lot of data points out there, both technically and others that do point to the rally being sustained. Is that fair to say, David? Are we looking at a lot of different positive data here?
David Smith: I definitely think so. And here’s the thing, too. An awful lot of people right now are bullish, and a lot of the commercial traders who fade the trade are bearish. And so we have this big conflict going on between the bulls and the bears, but it shouldn’t bother anyone who’s looking at it from a fundamental standpoint. Because we’ve actually had, I looked at the chart here this morning, we’ve had three discernible “retracements” on the way up to where we are now from January, and they lasted a couple of weeks. And if you look at them in the perspective that you would normally expect, you would look, “Well, this is interesting, and it’s to be expected.” And I’ve been almost hoping for a larger decline in here, certainly this summer. I think this will be the opportunity for it to happen over the next few weeks, which would give people an opportunity to add to their metals holdings, at a little bit better prices, and also if they’ve been sitting on the fence, to go ahead and make that move to establish a physical position.
The thing with human nature is that people say, “Oh, when prices decline to a certain level, I’ll buy,” but then when they decline there, the news sometimes is pretty negative, and they forget that they have to go against their little feeling on that and take a position, and they say, “Well, I’ll wait until it gets cheaper,” and they wait and they wait, and they never take a position. There are people right now that are waiting for $10 silver, and frankly, I don’t think we’re going to see that.
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