Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Coming up David Morgan of The Morgan Report joins me for another wonderful interview on the state of the metals and the markets. David talks about checking your premises as a metals investor and lays out the case for why it’s more important now than ever to not lose your nerve despite some lackluster price action. He also discusses the changes underway in our monetary system, changes that everyone needs to take notice of. So, don’t miss my conversation with our good friend David Morgan, the man they call the Silver Guru, coming up after this week’s market update.

Precious metals markets attempted to make some progress earlier this week. Most of the actual price progress accrued to the white metals as gold lagged a bit.

Gold rallied up to the $1,480 level mid week before retreating on Thursday. As of this Friday recording, gold trades at $1,467 per ounce, down $2 or 0.1% since last Friday’s close.

Turning to the white metals, the silver market is showing a slight weekly advance of 0.4% to bring spot prices to $17.12 an ounce. Platinum is unchanged on the week at $895. And finally, palladium is perking up again and is posting a 3.4% gain this week to come in at $1,772 per ounce.

Markets haven’t reacted much to the impeachment circus playing out on Capitol Hill. Perhaps investors sense that despite the deep partisan divisions being put on public display, it is will business as usual when it comes to the big fiscal and monetary issues regardless of whether President Donald Trump is impeached.

In fact, lawmakers and the White House managed to agree to a stopgap spending bill on Thursday that averts a government shutdown. Politicians agreed to kick the can down the road until December 20th, when the threat of a shutdown will loom again if President Trump decides to play hardball with Congressional Democrats.

Trump signed the current spending bill despite the fact that it contained no new border wall funding or any meaningful spending concessions from Democrats. The bill will expand the already ballooning federal budget deficit.

In October the gap between government outlays and receipts grew by 34% from the previous year to $134 billion. The running budget deficit for the last 12 months rose above the $1 trillion mark for the first time in more than six years.

Few in Washington or on Wall Street seemed to notice or care. Everybody seems to think deficits don’t matter as long as the Federal Reserve keeps interest rates low and stands ready to buy government bonds in unlimited quantities.

Fed chairman Jerome Powell has expressed concerns over the budget deficit and the unwillingness of elected officials to make responsible fiscal policy decisions. Powell may prefer to not be in the position of papering over rising federal debt, but he is now effectively trapped in that role.

Minutes from the Federal Reserve’s October meeting were released on Wednesday. Fed officials expressed optimism about the economic outlook and pushed back against the idea of employing negative interest rates in the event of a recession.

President Trump has expressed support for negative interest rates. Some economists, including former Fed chief Alan Greenspan, have said negative rates are likely to make their way to the United States.

There has been a clear and observable correlation between the global stock of negative yielding bonds and investment demand for gold. To some extent that correlation has driven gold prices higher over the past year – though we haven’t seen the kind of spike we might see if U.S. rates go below zero.

Hard money is clearly a superior store of value when compared to national currency instruments that carry negative yields.

We welcome the increase in public awareness about sound money that will surely come with accelerating currency debasement. But unfortunately some bad actors will also come out of the woodwork to try to take advantage of people seeking the safety of gold and silver.

This week a company called Chase Metals was exposed for operating a scheme that targeted Boomers and older Fox News viewers in particular. The playbook was all too familiar to us. It was essentially a bait and switch, high pressure sales operation.

It goes like this: Spin a compelling narrative to prospective customers about the need to own precious metals, then trick them into purchasing particular types of coins that carry absurdly inflated mark-ups as compared to ordinary bullion coins.

Victims of the Chase Metals scheme were apparently led to believe that the silver coins they got pressured into buying carried some kind of special collectible value. The truth is that the buyers overpaid by up to 200% for silver bullion that wasn’t special at all.

Coin schemers like these unfortunately give our industry a bad name. But here at Money Metals Exchange, we are working to change that. We are committed to educating the public about precious metals, offering low-premium bullion products, and providing honest, no-pressure customer service. Our precious metals specialists are not only highly knowledgeable, but they are also not on commission, meaning they don’t have a perverse incentive to strong arm customers into buying something that is good of them, rather than good for the investor – the complete opposite of the boiler room, heavily commission based sales structure at many of the other outfits. As such we are proud of the industry-leading reputation we have built, one that earned us Precious Metals Dealer of the Year in the U.S. a couple of years back.

Well now, without further delay, let’s get right to this week’s exclusive interview.

Mike Gleason: It is my privilege now to welcome back our good friend David Morgan of The Morgan Report. David, it's good to have you on as always and we appreciate the time today. How are you?

David Morgan: Mike, I'm well. Thank you for having me.

Mike Gleason: Well, we've had a significant correction in precious metals prices, especially in silver, and I wanted to get your thoughts on that to start out here. To us, it looked like the bullion banks sold futures contracts to lots of speculators who got interested in metals. Then as often happens, the speculators got taken out to the woodshed. However, open interest appears to still be rising. We would have expected that to fall after a couple weeks of lower prices and pain pushing those longs out of the market, so maybe something else is going on here. What do you make of the recent price correction and where do you think the markets might be headed in the short term? Do you think the selling might be over for now?

David Morgan: I do not. I think there's probably more so on the head. I mean, it's possible that we get a lift here to do a fake out from the longs, but I don't like the structure of the Commitment of Traders. Silver hit about a three-and-a-half year high, which hit $19.65 which I believe was the top of this spot market. And we've had several instances over the last six, seven, eight years where the last day of trading was the low pick for the year in the metals. Traditionally they start moving up the end of the year, but that's not been the seasonality for many years now. So, I think we're going to drift off lower. It's possible that the bottom is in, I called the four about a $1,450 on gold, about a 50% retracement from the $200 move that went from $1,350 to $1,550 when it finally broke that six year trading range and it's done that. But yet in looking at the CoT, I think we probably going to see lower before we see higher.

Mike Gleason: Obviously one asked to kind of check it's check their premises after a just the long period, especially in silver. Gold of course did reach that six year high silver has never gotten to that point or we haven't really broken out of the trading range. I'm sure you're probably doing this all the time, checking your premises and where things are, I mean is gold and silver still going to be a good place to be over the long run despite all the consternation and the difficulty that we've seen over the last few years?

David Morgan: Absolutely. I mean we're facing something that's really never been, taken place in monetary history at least what we know of recorded history, and we're seeing the demise of the age of empire. I mean basically everything was built on this system, on money and the money system is actually designed to fail from the start. You cannot have infinite interest rates. And what it mean by that is the, the exponential function, the compounding of interest over and over and over again. They'll go to infinity eventually. So, we've had adjustments and certainly some very big problems throughout monetary history. I mean there's several that we can name. The point is, I don't think it's ever been one of this breadth and scope where basically you know that 7 billion people on the planet and very few will come out unscathed. It's certainly not the end of the world, but there will be an adjustment and how big how hard and how long that adjustment is, no one really knows.

I think the main thing to do is to one, not panic and to realize that all the wealth stays in place. I mean all the agriculture, all of the oil fields, all the buildings, they're all still there. But what takes place in a financial adjustment, a currency reset, any words that you want to use, is that the ownership changes basically. So, you have a lot of people that might be over leveraged, and the over leverage will take them out of the game so-to-speak. So, real estate investor that's on the margin, that's very leveraged, waiting for, let's say hyperinflation to bail them out may have made the wrong bet. There will be deflationary forces. It's inevitable because of the way capital markets are set up. So, when the bond market starts to fail, interest rates will start to be pushed up and that will decrease the value of the bonds.

And since they're so massive and so widely spread out among the financial capital markets, they basically touch everything… pension plans, retirement savings, savings, even money markets, everything is basically touched by the debt markets. There's nothing that really could escape it. So, this is something that had my eye on for years and I've always stated that, watch the bond market that holds the keys to the kingdom and the bond market really starts to be questioned for its ability to not just pay the interest, but what is the real value something that can never be paid off, i.e. the national debt? Then at some point you'll probably start to see some movement in the bond market. I think of what happened in my lifetime. I don't think we've got another five years, but people such as myself and others before me have made statements similar to that and then they're wrong in their timing, and it's very difficult to say when.

In fact, I was listening to a podcast this morning because I try best to stay up on all of this and his forecast was like 2047 and I forget how it came up with that number, but it never hurts to be early. And as the markets twist and turn the least valued assets right now, particularly silver and gold, somewhat relative to the S&P, the DOW, the real estate market or anything else. So, both metals are undervalued, particularly silver. So, when you buy something undervalued and add it to your portfolio or balance or rebalance your portfolio is something we really should consider.

Mike Gleason: Certainly, a key points that you hit on there is that it's never bad to be early. You definitely don't want to be late. Being too early as is not the of the world. Being too late is catastrophic.

It's obviously not been a whole lot of fun for gold bugs these days. The Fed has returned to cutting interest rates. They are pouring hundreds of billions into the repo markets and they have launched a new program to purchase treasury notes, which looks suspiciously like Quantitative Easing. One might think all of the stimulus along with the trouble the Fed is trying to address in the repo markets would drive precious metals' prices higher, but that isn't what happened. For most investors the takeaway from all this extraordinary Fed policy seems to be “buy more stocks” and “there isn't anything to worry about.” Do you think that is the right takeaway and can the Fed keep this party going a while longer?

David Morgan: Well, it's not the right takeaway, but it certainly points to the fact that there is a lot of manipulation and control in these markets. I mean anyone that's subjectively looking at the facts, as you just stated, sees that there's more money printing going on. This repo thing is scarier than it looks and yet, the stock market continues to make new highs. I'm just repeating back what you said, but fundamentally all those facts should lead to higher precious metals' prices and they don't. And why is that? And the reason being, as almost anyone that's ever listened to me or any most people on your show would say, look, it's the paper paradigm that runs the futures markets. And that's how the prices determined. And until that is broken enough for the market to settle based upon the physical market, you have the ability to basically control the price more or less.

And that's unfortunate. People hear that and they get discouraged and he said, well, you know, why fight the Fed? I'm just going to be in the stock market. I don't want to be the metals. But as we said in the last segment, it's important to be prepared for what the eventuality is because nothing grows to the moon. The Fed Is not all mighty, even though it might seem that way at times, and we're getting near the end. I do believe, I know that's really tough to time, but I can't see it going on much longer. Our debt is so high relative with the interest payments are, and this is with low interest rates. If interest rates get pushed higher as I outlined a moment ago that it's more and more difficult to service the debt. So, no, the fundamental facts have probably never been more important for owning some precious metals.

And yet the market is just worn out. I mean it was a six year trading range for gold. It finally broke above it. It went up rather significantly. $200 on a $1,350 is a pretty good move given up half of it and it's taken awhile, and people say, “Ah, that's it.” And it would comment, and of course you could comment on my comment because as you know Mike I talk to many of the wholesalers and retailers in this marketplace and most of the bigger ones as well… and I was told by one rather significantly sized retail dealer that they were getting a four to one ratio, meaning they were buying back from retail, not on the wholesale side, about four times as much gold as they were actually putting through the door. So, most of this move has been based on the bigger money, in other words the ETF's, hedge funds, banks, you know China, that type of thing.

Mike Gleason: Yeah, certainly that's similar to our experience as well. Definitely kind of a skewed to one end there. Well we'd like to get your comments on the department of justice investigation of the bullion banks, they have indicted several bankers including six now from JPMorgan. They've gotten a few guilty pleas and some of these guys appear to be cooperating. The DOJ is going to be prosecuting using RICO laws, which implies there is evidence which goes beyond cheating by a few rogue traders. They are treating this activity like organized crime. On one hand we're skeptical about whether the investigation is going to lead to real results. We'll believe it when we see it when it comes to the federal government doing anything serious about corruption at major Wall Street banks. The banks pretty much own Washington DC, as we saw in 2008 when massive fraud led to exactly zero high level prosecutions and crooked bankers were handed bailouts instead. On the other hand though this prosecution does kind of look like it might be going somewhere. Do you think the DOJ might be serious about this investigation?

David Morgan: Oh, I certainly hope so. I agree with you. I mean, I’m on record as having said there's going to be another, you know, wrist slap and that would be about it. But now that you know more are involved and it seems like there's a bit of a pit bull attitude, meaning that the DOJ hasn't given up or going away very easily this time. I am optimistic that may be just maybe they will actually pursue some justice in this case. It remains to be determined. So I'm slightly optimistic that I could have been wrong earlier when I said it'd be nothing more than another, you know, wind up everybody and then it's just a wrist slap, pay the fine and go back to business as usual. It certainly hasn't changed the trading structure of the COT. That would be one indication to me that the banks are scared that there's going to be some real effort put forth to this investigation and the prosecution process. And so far it has not indicated that.

Mike Gleason: Getting back to metals prices here, David, the gold to silver ratio has been quite stubbornly stuck in the mid-eighties about 85 to one as we're talking here today, we saw it get up to about 90 to one earlier this year and after a summer rally it fell. But I don't think it quite got below 80 to one at any point. Although maybe it did inner day perhaps sometime over the summer, I don't recall exactly. So, it seems like the ratio, like silver, is really stuck in a range. It's between say, 80 and 90 to one. So, what do you make of the gold to silver ratio, David?

David Morgan: Well, it's historically high. It's been as high as a hundred a few times since the crime, 1873 when silver was really demonetized. When you have silver and gold performing the same function, which means money, it's never traded above 20 to one. So, if you go back to ancient Egypt till 1873, basically, silver had a ratio of 20 ounces of silver to one ounce of gold or lower most of the time, lower like 12 to one 10 to one nine to one, that type of thing, until it became a commodity only. And so it really depends on how things on unravel going forward. And when the monetary demand for gold accelerates, it will spill over to the silver market. And once silver is thought of more on a monetary basis for investment basis, for protection basis or anything that you associate with protecting capital or making capital gains, that's when you'll see the ratio come down.

And I'm certain that it will, it's just hard at this point in time when things have gone on for a long time. I mean the peak in silver was the end of April or early May 2011 and here we are at the year 2019 and silver has not performed as well as gold. Gold's at a six-year high, but silver hit a three and a half year high and fell off rapidly. So it's tough. I do still believe in the metals and it's not because I'm stubborn is because I studied monetary history so deeply and intensively, and I know the outcome ahead is not one that's very pretty for the fiat system and it's apparent. I mean, if you just forget everything I've ever said about the precious metals, just look in the landscape of money as it's perceived right now, there's lots of alternative things going on in the monetary system.

Bitcoin is probably the prime example. There's somebody somewhere that said, “Look, I've had enough with what the government's control I'm going to try this one.” And of course there were a lot of copycats out there, but this is what happens at the end of the age of not only impart the end of the age of a currency experiment that has always failed in the past. So, that's a good indicator. It doesn't have to just be gold and silver as an alternative. They're all alternatives that are coming to the fore all the time. Of course you have precious metals back cryptos to some extent and you have others that are associated with the different commodities and you have some that are just fiat, basically. They’re just an edict that says we’re only going to make this many. There's some that are unlimited. Nonetheless, the main point is that there is a striving to find an alternative to the current monetary system.

Mike Gleason: Yeah. There certainly something that continues to go on underneath the surface when it comes to our monetary system and yeah, people need to take note of that and recognize that none of the problems of the last eight, 10 years have been resolved to any extent. In fact, they've only become worse. So, I think when we're talking about checking our premises as precious metals minded folks, we need to keep that in mind.

Well lastly, David, let's get to any final comments that you may want to leave us with today. Perhaps something that we haven't covered yet. What are you going to be watching most closely or what do you think people ought to be focusing on?

David Morgan: Well, as I've always stated, I think the best thing to do, if you are inclined to understand where we are in our current economic system, it's probably very wise to have some precious metals. And if you want to go beyond that… I mean, I don't really like the state when I heard it, but it's absolutely true…. one of these old timers, when I spoke to the Society of Mining Engineers very early on in this career, after my talk a guy came up and said, “Oh, I've always made more money and paper silver than I ever have paid in silver, silver.” And what he meant was not futures, he didn't even mean options. What he meant was the mining equities. And so this is true. I mean, for example, when we had a great run in 2016 and I thought that the bull market had restarted for the precious metals certainly looked like it at the time, but at turned out I was wrong.

It might've been a false start. I'm not going to make an excuse. I was wrong. Nonetheless, it was a very big ramp up for the metals. We had a silver and gold performed from January 2016 all the way into September and then they started to correct. The point is the silver made a pretty nice percentage move, but we've traded First Majestic almost perfectly during that timeframe and during that timeframe it outperformed the metal like five to one. So, there are times when equities do play a part of the portfolio, but they’re for aggressive investors. It's not something that's a casual buy and hold type of situation. These are volatile, high beta, meaning high volatility stocks, and you pretty much have to know what you're doing to perform well in a portfolio. And again, it would be part of an overall structure. It wouldn't be just those shares because they do move up and down so rapidly.

Mike Gleason: Yeah, you either need to really know what you're doing and how to identify and decipher a geologic survey put out by a mining company or you just need to get hooked up with people like The Morgan Report and let them do a lot of that analysis for you, like you've been doing such a great job over the years. Well, good stuff, David. It's always a real pleasure and we appreciate your insights once again. Now before we let you go on that note, let's tell people about The Morgan Report and how they can get on board and then follow you more closely.

David Morgan: Sure. Just go to TheMorganReport.com, our main website, give me a first name and an email. We'll put you on the free list. You'll get a weekly update, I call it the Weekly Perspective. I talk about the most important financial news that you probably won't find anywhere else. Some of it's mainstream, like a Bloomberg or Reuters or whatever. These are articles dug out that most people overlook or don't have the time to find. And then I usually wrap up the end of the segment with some comment or commentary on both gold and silver, and it's a good way to kind of catch the, let's say, alternative view of the news. And it's not just bloggers or anything like that. A lot of stuff is mainstream, but you got to know where to look to find it. And the main theme over the last say, several months, Mike, has been, there's really a contraction in the global economy.

And the second thing is that we have a food situation that's going to hit everybody here probably in the not too distant future. Probably within the next six months, year at the most. And this is something that may spark the metals because it's pretty hard to hide rising food costs, or rising energy cost. The two things that Americans particularly pay attention to is how much does it cost me to eat? How much does it cost me to fill up my tank of gas? And so, I think that could, I’m not saying would but could, be a catalyst for people to say, “Why is this costing me so much, there must be inflation.” And in a way it is, but in other ways it was supply and demand. So, it's going to be interesting to see how things progress during these very, very turbulent times and I don't want to be overly aggressive on the gloom, doom type of scenario.

Certainly there's a lot more to life than money, but nonetheless I think a chance favors the prepared mind. So, if you are prepared, you can sleep well at night and regardless if I'm off by a factor of a decade or not… it's something, if you're my age, you might pass on their kids… as long as you don't over invest I think it's actually the best way to protect yourself financially cause it's outside of the current system. And that's a key point that some have said but probably isn't emphasized enough and everything fails as a thought experiment. Let's say as an example, the banks go down because of some electrical failure somewhere. You can always go to your trusty coins and there they are, and they always have value. So, I'll leave it at that Mike.

Mike Gleason: Yeah, very well put a good summary there and couldn't agree more. Well, thanks again David. I hope you have a great Thanksgiving and we'll be catching up with you again down the road. Take care of my friend.

David Morgan: All right, you too. Thank you.

Mike Gleason: Well that will do it for this week. Thanks again to David Morgan, publisher of The Morgan Report. To follow just visit TheMorganReport.com, you can also follow him on Twitter. It's @silverguru22 and if you haven't already, grab a copy of his book titled Second Chance: How to Make and Keep Big Money During the Coming Gold and Silver Shock Wave, which is available at MoneyMetals.com and other places where books are sold. Be sure to grab a copy of that today and then check out TheMorganReport.com and start getting the wonderful commentaries that David and his team put out there on an ongoing basis.