- David Morgan: The Silver Supply Squeeze In 1980 Could Look Like A Warm-up!
During an interesting interview on PracticalBull.com, David Morgan made the statement that the silver supply squeeze of 1980 could look like a warm-up compared to what could be coming in the not too distant future. The bull run in the 70’s took the price of silver from less than $5 to almost $50 dollar. Of course, there is nothing shocking to this statement for long term followers of the precious metals markets or for people that understand today’s monetary catastrophe that is unfolding. But still it’s worth one’s time to look at the analysis of a respected person like David Morgan which leads him to such a conclusion. His analysis is based on today’s demand / supply structure and the dynamics in the silver market.
On the demand side, the driving forces are the industrial and investment demand. David Morgan points to the fact that 54% of the silver market comes from industrial demand. That’s huge and raises the question what would happen in case of an economic recession or depression. In David’s view, the demand for silver will fall but not significantly like most people think. The key driver behind that thinking is the fall will be offset by a faster rise in the demand for wealth preservation. Moreover, as 70% of silver today is obtained via base metal miners (through copper, lead, zinc mining and related base metals), decreasing economic activity will lead to less demand for base metals and hence less supply. Even under very bad economic conditions most miners will continue their activities (even if they are operating with losses) although less mining would be the result, because it’s cheaper to operate with losses compared to closing a mine. Important insights from the expert!
In case of economic contraction, the run to assets that are free of counterparty risk (like gold and silver) will outpace the decline in industrial demand.
On the supply side, David Morgan forecasted in his 10 year outlook back in 2010, that the silver production would see a sharp increase in the first 4 years. So far his forecast has proven to be correct. But the point is that despite increased production, the demand for silver is expected to experience a supply problem because of high investment demand. Obviously, the driving force is the infinite demand for money as a result of the unlimited money printing scheme of government(s). It’s very likely that the debasement of currencies will result in a loss of trust. Such an evolution would increase the demand for gold and silver at an accelerating pace. As gold will become (too) expensive, it will push the demand and price for silver much higher.