David Morgan of the Morgan Report discusses the reasons silver has hit lows not seen in two and a half years, as well as where he believes the white metal may go from here.
While silver prices gained slightly on Wednesday (September 12), they fell below US$14 per ounce to a two-and-a-half-year low in the previous session.
According to David Morgan of the Morgan Report, the reasons behind Tuesday’s (September 11) decline are not completely cut and dry. However, in his opinion, the “why” is “very basic” and has to do with more selling pressure than buying pressure.
“There’s been a lot of people that have given up on the silver market, and that is verified by the amount of retail sales in silver,” Morgan told the Investing News Network (INN).
“If you talk to the [silver] dealers, and I do every month or so, they are basically drying up their business because there have been so few new buyers of silver, and gold for that matter, so there’s been a lot of sell backs,” he added.
Morgan also noted that most investors who purchase the white metal typically buy it and hold it, as opposed to buying and selling back, but that pattern has changed in the past few months.
He told INN, “I talked to one [silver] dealer that I know very well, and he said for the first time in years they had a few months where they actually purchased back more than they sold.” He explained, “that’s normally when you get capitulation, where people give up — that’s usually the bottom.”
Morgan said that he thinks silver hit its bottom a few weeks ago and that yesterday’s decline came unexpectedly.
“If we took a survey among the Bill Holters, the Morgans, the Eric Sprotts and anybody in the metals business and anybody that’s a wholesale or retail dealer, [on] if they thought that [silver] was going to be at this level less than two years ago, I don’t think any of us would have said you’d see it below US$14 again,” he stated.
Also noteworthy is the fact that silver’s dip caused the gold-silver ratio to increase above 85, which is the highest level it has experienced since September 1993.
Commenting on that, Morgan stated, “the ratio being at 85 is an indicator of an extreme. Usually when the markets are [at] extremes, investors are smart to take a look at an extreme and see if that’s the time to start accumulating.”
Fortunately for the metal and holders of it, many insiders — Morgan included — do not expect this downward trend to continue.
In fact, the Silver Institute noted in a press release on Wednesday that China will continue to drive the global silver market forward. The release states, “China will continue to be a major driver in the global silver market for years to come, fueled by continued industrial demand and silver mining activity.”
It continues, “China is by far the largest consumer of silver globally, accounting for 18 percent of global fabrication demand in recent years.”
China’s consumption of silver for solar applications has been rising in recent years to an estimated 65 million ounces in 2017, as more than 70 percent of global solar panel production takes place in China.
Similarly, demand for silver in the electronic and electrical sectors continues to grow. Chinese consumption was estimated at 78 million ounces in 2017 and is expected to increase modestly this year.
While Morgan may not be entirely sold on China as silver’s saving grace, he does believe that the white metal will rise again and will most likely begin any sort of significant climb in early 2019.
As of 3:08 p.m. EST on Wednesday, silver was trading at US$14.24 per ounce.
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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in contributed article. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.