David Morgan uses the word “extreme” when he talks about the significant selling pressure that drove gold down a quick hundred dollars to a closing low of $1,565 on December 15th. Where did all that selling come from? David points his finger at the derivatives world. He says most of the selling that drove gold & sliver down to the lows of last September was done in the two main exchange traded funds SLV and the GLD.
After checking with several of the largest wholesalers in the United States, David found that there was very little liquidation going on in the retail market of gold and silver, certainly not enough to drive the markets down as far as they fell. Instead, in the world of instability and unknowns caused by the the mess in Europe and the MF global debacle, he thinks large institutional players were liquidating their ETF’s because the gold and silver behind these ETF’s is really is nothing more than a paper promise. David also points out that a lot of these sellers did the exact opposite of what a good investor would do. Specifically that they sold their best assets, paper derivative gold and silver, to get cash to make the balance sheets look better because “their Italian bond portfolio is losing more money than ever”.
Regardless, whether the selling came from the derivatives or not David thinks the damage is done. “You’re are probably going to see more pressure on gold and silver to the end of the year, and I think it’s going to be fairly weak through the first quarter of 2012. The normal historical seasonality that usually occurs in the first quarter of every new year isn’t going to happen this year, instead we are going to see more more base building, more backing and filling for the first 3 months of 2012. It doesn’t mean it’s not a good investment. In fact I think it’s a good opportunity for people who are on the side lines to get in.”
On silver, David thinks that the September 26th 2011 spike low of $26 will probably hold, primarily because that was where the the last major physical purchase occurred. Specifically where Sprott Asset Management purchased 22 million ounces of silver to create the Sprott Physical Silver ETF PSLV.
On the stock side, he thinks that mining shares have underperformed is because money managers who are restricted to buying equities have have chosen to buy exchanged traded ETF’s instead of mining stocks. That said, David “strongly believes that there will be a time when shares will do better than bullion percentage wise.” His reasoning is that people late to the party will be “scared to death” when gold and silver moves back up to the recent highs of over $49 and $1,900 respectively, and that instead of buying bullion they will move into the equity side.
In short, David Morgan of www.silver-investor.com thinks that investors should be buying the best of the best right now. While he doesn’t mean you can’t speculate in the juniors, he does mean investors should “make sure what you are buying has value and that your overall portfolio has value.” Do that and “you are going to do extremely well in my view.”
To visit David Morgan’s website go to www.silver-investor.com