Claudio Grass (CG): During the first wave of lockdowns and travel bans we saw a lot of disruptions in the physical precious metal market. With delivery delays and logistics problems, has the situation fully normalized today for physical silver, or are you seeing shortages?
David Morgan (DM): We are still seeing shortages. I mean, the amount of investment demand set a record in 2020 and has remained robust in 2021. The pressure on the market comes partially from the supply chain, which is still slightly disrupted, but largely repaired, but it is primarily at this time from a backlog. It is a backlog of orders for the U.S. Mint product, the silver eagle it is referred to, because they’re making a changeover for security reasons. You are also seeing a lot of retail dealers that are selling products like coins, medallions, small bars, kilos, and hundred-ounce bars. They must put their investors in a queue for three, four, even six weeks.
On top of that, you have a gentleman named John Adams from Australia that has made a campaign over the last month or so, to educate people that unallocated accounts are basically a piece of paper only and that you need to switch from a piece of paper into the physical market by having an allocated account and/or taking the physical metal. This is also putting additional pressure on top of the already robust investment demand through the retail side.
CG: Precious metal investors have been aware of the risk of out-of-control deficits for a long time, but so far, a large-scale debt crisis has been avoided. However, looking at the record explosion in government borrowing we saw during the last year, do you think time might be running out on the debt bomb?
DM: I do think we are running out of time. As I said earlier, the bond market holds the key, and I think it will not default, but be inflated away. The key thing to look at is the interest rate. Right now, everyone refers to the ten-year treasury as the benchmark. It is the interest rate marker that is used to set the interest rate for other big loans in the system like mortgages, car loans, or school loans…This benchmark has been edging up. It has been as high as 2% over the last couple years. It has been up to about 1.7% recently and only backed off slightly as we are doing the interview. It is possible that the Fed has enough power to lock it in at a certain level, so it cannot go above 2%.
But all manipulations in the past have always come to an end, so I expect this one will come to an end as well. The Fed probably knows that at some level. If I were on the Board of the Fed, I would advise them not to try to lock in the interest rate. They may be successful for a while, maybe three months, six months. But once it goes beyond what they set, because the market forces are so great that people do not want to hold a piece of paper that is worth less and less, and moving toward worthlessness, they will sell it at any price to get cash in hand. And that will force interest rates higher.
The biggest problem is the debt. We that study markets and understand inflations, know this well. Everybody is looking the other way in officialdom. But deep in their heart of hearts, everyone really knows it is a system designed to fail. There really are not many commentators that are that stupid out in the Wall Street Journal, or Barron’s, or Financial News Network, or any of these TV programs, that do not really know the truth. They just want to avoid it at all costs, because if someone in the mainstream said something like I would say on a YouTube channel, and that got into the consciousness of the people that believe the system, it could be over overnight. Like Henry Ford said, if people understood how the banking system worked there would be a revolution overnight.
CG: The stock market rally of the last decade, but especially over the last year, is looking increasingly absurd to many of us who understand basic economic principles and monetary history. Is a severe correction inevitable in your view or can this state-sponsored everything rally keep going?
DM: I changed my view on that. It could keep going. And the reason I say that is that if we go into a high inflationary mode, where the Fed’s trying to pay off the debt, as I said several times in this interview, what we will see is a Venezuela-, an Argentina-type of stock market. Which means it keeps going up and up and up, but it does not maintain its value commensurate with the amount of true inflation.
In other words, if you go back to the 1923 hyperinflation of the Weimar Republic, the stock market went straight up, along with the money expansion. It would have helped you lose less money than you would have done if you stayed in cash, which went basically to zero. But it did not keep your purchasing power intact. The only things that did were gold and silver. I do not rule it out as a scenario, but I do not think that that is the way we’re going to go. I think we will probably have a big market crash, the bond market will adjust, and the Fed may not have to print its way out of the bond market. If the stock market crashes and the bonds are repriced, a lot of people that own them will have an investment that is worth 60% of what it was a month before.
And if it happened rapidly enough, there would not be the opportunity really to get into a selling panic. It could just happen in a matter of days. I am not predicting that, but I am just suggesting that it could. I do not know how it will unravel. My point is that the bond market does not have to go into an inflationary or hyperinflationary mode. It could just go into a huge sell-off where the interest rates get pushed high, but you really do not have the opportunity to sell. In other words, you get on a phone to your broker dealer and say, “Hey, I’ve got $15 billion in ten-year treasuries. I want to sell,” and you simply cannot sell them right now. There are a lot of different scenarios at play here, but the market is smart enough to see that coming, and that’s where you’ll get a big surge in precious metal prices expecting that to be the case.
CC: As precious metal prices started heating up, in Switzerland we saw a lot of interest for physical gold and silver from first time investors. And many of them they are relatively young. Do you think this crisis might have served as a wakeup call for Millennials, forcing the younger generation to see the value of keeping their savings in real money?
DM: Absolutely. And I think it goes together with the Wall Street Bets silver group and it is worldwide. We have done a great disservice to the younger generation. Speaking for myself or my generation, we have failed to stand our ground. We were more easily persuaded by shiny objects, a higher lifestyle, buy it now, pay for it later… Everything we were taught by the financial interests was about keeping our lives soft and easy, at the expense of what it was doing to our children and our children’s children.
The best thing that can happen, in my strong opinion, is for the younger generation to clearly see the problem that they are facing and do the one and only thing that history taught us so far. That is to get real, be real, and buy real. And that is already taking place, so I am very gladdened by the fact that a lot of the younger people are waking up. It does not mean that it will not be tough going forward. It will be. But we must move forward on sound principles and real money, real value. And I do not rule out cryptos; I’m not a huge fan of them, but they could play a role, and probably will.
CG: Younger investors have also been behind the surge of crypto and alternative investments. Pushing up not just Bitcoin, but also all kinds of digital currencies, and new investment vehicles. You think this is signaling a loss of trust in fiat currencies and in the current financial system in general?
DM: I do think it is signaling a distrust in the entire current financial system in general. I also think that we are not looking at the picture completely yet. There is a subset in the crypto world which is precious-metals-backed cryptocurrencies. It’s still a small niche, but as the system starts to unravel more and more, I think there will be a shift in the consciousness of the crypto audience to look for the most stability they can find in the crypto space and that’s precious-metals-backed cryptocurrencies. It is quite possible that we may see a big surge in gold and silver through the crypto space as we continue to see the corruption in the financial system unravel.
This article has been published in the Newsroom of pro aurum, the leading precious metals company in Europe with an independent subsidiary in Switzerland.
This work is licensed under a Creative Commons Attribution 4.0 International License. Therefore please feel free to share!
Claudio Grass, Hünenberg See, Switzerland 2021
The Goodnight Vienna Audio file