By David Morgan, Posted Friday, November 6, 2009

Ellis Martin:  Today we're joined by the silver guru, David Morgan of The Morgan Report. His Web site is silver-investor.com. Mr. Morgan is one of the world's preeminent world experts, not just in silver, gold, and precious metals, but related issues in the mining sector. David is also an author, having penned the book Get the Skinny on Silver Investing. He's a teacher, lecturer, and world traveler. David, welcome back to The Opportunity Show. Can you tell us, please-how has the precious metals markets, the sector, changed in the last five to ten years? 

David Morgan:  We can look at it sector by sector, but I think one of the big things that's changed is the amount of interest in all the markets. If you consider the number of Web sites that are devoted to the precious metals today versus how many were available when I started around ten years ago, you discover that when the silver-investor.com Web site started there were very few sites devoted to silver. There was Ted Butler, Frank Sanders, and me . . .

Certainly there might have been others, but as far as fairly well known personalities there would be two or three, to my knowledge. Today you have many, many people in the sector. In fact most of them that have come up strongly, I know personally: Sean Rakhimov at silverstrategies.com; Kenny Parsons, Silver Bear Café; Mike Maloney, goldsilver.com; Jason Hommel of silverstockreport. (Moreover, Jason was one of my earliest subscribers.)

Mr. Martin:  In my opinion, you really standout amongst that group, though. You've received a lot of press lately. How do you account for that, without sounding self-indulgent?

Mr. Morgan:  We just spoke about one aspect, and that's Web sites, which is really one of the smaller arenas. The big arena is the metal itself. This is where you've seen the addition of the ETFs that have become very popular in the last few years-primarily the gold ETF initially. And then there was a bit of quandary about whether there would be a silver ETF. I wrote several articles, which you can go to the archives and check out. In them I stated, “Whatever is good for gold is good for silver,” and added that eventually there would be a silver ETF. And lo and behold: there's not just one silver ETF now, there are several.

This has brought a great deal more buying pressure into the silver market, because most of the fund managers or managed money that are in the ETFs are restricted from buying the commodity. In other words, if you're managing money, your mandate is that you can buy stocks, but you can't buy the commodity. Well, since the ETF is basically a commodity that trades as a stock, you've got a huge interest in this market and that has definitely brought a lot more attention to the gold and silver markets.

How do I stand out? There are always people on these major financial channels looking for input, and I'm one name that's recognizable to them. So, periodically, a phone call comes in to invite me for an interview on one of their shows. I've been at it for a while (name recognition notwithstanding), but there are several of us who do this, and I'm happy to be asked from time to time.

Mr. Martin:  I'm a retail investor and I'm taking a look at the silver ETF; I'm taking a look at silver bullion and I'm looking at silver stocks. Aside from possibly investing in all three, help me make my decision, okay?

Mr. Morgan:  My thinking goes like this. It's very simple-the first thing I want out of my investment in this sector is something that I feel stands alone outside of the system. Only coins in hand or bullion in hand do that. So my first purchase, and I recommend it from the start, is to have the physical gold or silver in hand.

Once that's accomplished I like to see some safe leverage, if there is such a thing. Whenever there's leverage involved it means higher risk and that's a fact. But I have learned over the thirty years I've been investing that the best risk-to-reward profile is actually in the top-tier, cash-rich, unhedged mining shares. As long as you invest for cash-in other words, buy the shares without margin-you're pretty safe. Of course, prices go up and down, yet at times the investor receives equal leverage to a futures account, without the risk of a futures account.

So I like the mining equities. I divide them into two sectors, which are (a) top-tier companies, where we put serious money for serious companies, and (b) the speculative money, where you put in a little money to win a lot. That's how I have advocated investing or speculating in the sector from the start, and I continue on that theme.

On the silver and gold ETFs, I'm neutral to positive on them. I mean, certainly there is more validity to an EFT investment, in the realm of the institutional investor, the hedge fund manager or very, very wealthy retail investors. However, I don't think it's the best choice for your average investor, even though it's a very easy one because it's a stock and you can just click your mouse, if you have an electronic trading platform and buy or sell the shares. So from a liquidity standpoint, they're excellent. But I don't think that would be my first choice.

Mr. Martin:  It's not necessarily your choice of highest return in the long term, is it?

Mr. Morgan:  No. I think the highest return that can be proven so far in this bull market has actually been in the mining equities. However, if you did it right, the highly leveraged options or futures market can certainly make a great deal of money in a very short period of time.

We had Silver Standard recommended when it was under a dollar; it's been as high as $40.00, and now it's in the $20.00 range. Pan American Silver was under two dollars when it hit our list; it's done about the same as Silver Standard. Many of these stocks have had huge gains, yet many people came into the sector in the last few years and these stocks have moved, but most not beyond their old highs.

If you bought Silver Standard at $20.00 a few years back, you watched it go down to about the $6.00 range last November and then back up to $20.00 now . . . you're even. These markets climb a wall of worry, all bull markets do. There are these long pauses or hesitations, or what I like to refer to as consolidation periods. Once those consolidation periods end, and I believe we're ending now, then you get ready for the next leg up.

Mr. Martin:  We'll continue our conversation with the silver guru, David Morgan, in the next segment. Thank you, David, for this interview on the theopportunityshow.com. I'm Ellis Martin, executive producer.

Mr. Morgan:  Thank you, Ellis.