Publisher of ‘The Morgan Report' discusses his outlook on the silver market.
David Morgan is a widely recognized analyst in the precious metals industry and consults for hedge funds, high-net-worth investors, mining companies, depositories and bullion dealers. He is the publisher of “The Morgan Report” on precious metals, author of “Get the Skinny on Silver Investing” and featured speaker at investment conferences in North America, Europe and Asia. Continued debt concerns around the world will keep investor appetite for the gray metal strong, he says. HAI's Sumit Roy recently caught up with Morgan to discuss the outlook for the silver market.
HardAssetsInvestor: Why has silver been falling over the past couple of weeks? Is it related to the whole “fiscal cliff” situation?
David Morgan: I think the fiscal cliff is overplayed. There are many long-term problems with the debt-based monetary system and the fiscal cliff situation won't change that. Fundamentally, that translates into higher metals prices.
But right now, there are a couple of things that are going on. One that I don't think has been addressed much is the new tax laws in the United States, which are causing some selling.
For example, if you have a cost basis of $10 silver, and you've been holding it for several years, you're better off selling it before the end of the year and taking your gains at current tax rates, rather than rolling it through into 2013, where it's a disadvantage on a tax basis. This is something that I don't think too many have addressed, but it is something that is influencing current price action.
Another thing is, there is a lack of interest or participation in the markets generally this time of year. We saw a lull last year near the Christmas timeframe. It looks like we're experiencing that again this time. The short interests in silver - read the banks- are able to move the market greater when the volumes are low. We are seeing a replay of last year's price action.
HAI: How is silver industrial demand doing? Can you explain what's going on there-is the downturn in the solar industry having an impact?
Morgan: Solar's situation with silver is bullish overall, because it's a demand that really didn't exist in any significance several years ago. Over the last four years or so, demand for silver from the solar industry has been steadily increasing up until 2012, at which time it has decreased.
That being said, there are a couple problems with solar. One, it's really not a very efficient way to generate electricity and it's very inefficient on an economic basis. In other words, you're much better off burning coal, natural gas, oil, etc. Any other generation method is superior in economic terms to solar.
However, growth in solar has been so robust the last few years because of subsidies. The government came along and said, “Well, we know this is inefficient economically. But it's green energy. And, therefore, we like it. And, because it's not competitive on an economic basis, we will subsidize you if you put solar panels on your home.”
One of the leaders in the solar space is Germany, which on a nation-state basis, has probably been the most aggressive in putting up solar panels on government-owned properties. However, while the German economy is strong, they are experiencing problems because of the sovereign-debt crisis in the eurozone. In turn, they are not subsidizing solar to the extent they were previously.
Now solar has to compete on a free-market basis. The consumer now has to think- if I could spend a dollar and get this much power out of solar, or I could spend a dollar and get five times the amount of power out of the conventional method that I have on my wall, what am I going to choose? Well, most people will vote with their pocketbooks.
Still, there are too many subsidies that still do exist for solar to cave completely. But the downturn in solar is going to have an impact on silver demand and it's not going to be as robust as we once thought.