Transcript Below:

Mike Gleason (Money Metals Exchange): It is my privilege now to welcome back David Smith, senior analyst at The Morgan Report and regular contributor to MoneyMetals.com.

Well David, happy new year, my friend and thanks for joining us again. How are you?

David Smith (The Morgan Report): I'm doing good, Mike. Looking forward to a very exciting year. I think we're going to have all sorts of interesting things to be watching and reacting to.

Mike Gleason: Yeah, it certainly looks that way. And we've got lots to talk about today as usual. I'll get right into it. As we're talking here, the metals are pulling back a bit, but both have continued to perform well in the early going of 2017. So, where are we here in the gold and silver markets? What's driving the positive trading action over the last few weeks? And do you think it's sustainable?

David Smith: There are a lot of conflicting currents out there and trying to make sense of it all can be really difficult. I think what's really important is that people need to have a plan that takes into account the fact that there are a lot of unknowns, but yet if they are a believer in the gold and silver story, as we are, they should be accumulating.

The simplest thing to do is to just have a dollar cost averaging where you buy a certain amount every month that you've committed to do regardless of the price. Because if you try to catch all the squiggles, you really amp up your own concerns and make it difficult to make decisions that aren't emotional-driven.

It's also very possible, if not probable, that you miss the longer picture, because you're trying to catch the little squiggles rather than realizing that we're in a long-term uptrend that's likely to continue for a number of more years.

Mike Gleason: The setup coming into this year has looked a lot like last year. We're coming off a December rate hike by the fed, the only one of the year in both cases, 2015, and 2016. A dollar, that appeared to be overvalued and gold and silver looking quite oversold. Last year we had a fantastic start for the metals and the miners. How do you see things going this year? Are you looking for a repeat of 2016, David?

David Smith: I think that there's going to be a certain similarity to it. I remember last year the first couple weeks right up into the time that we're talking about now a year ago it was really pretty discouraging for the metals and the miners. I specifically remember on January 19th, which is tomorrow will be a direct anniversary of that, it looked like the new lows were going to be made and sustained. But by the close, that had turned out be a bear trap. The market firmed up and it never looked back.

I don't know if we'll have a strong first five or six months as we did last year, but I think it will be stronger than most people expect. And I think the risk for people that believe in the precious metals is either being out of the market, or not having their full allocation, rather than having the position, because I think there's a tremendous amount of energy that's pushing these metals to the upside even though we see volatile days like we're looking we're looking at today.

Mike Gleason: Certainly, sentiment is pretty low right now among the investment world towards precious metals. Many are thinking that there's no reason to own precious metals now that we have Donald Trump in the White House.

We'll get into that a little bit more later. What do you have to say about sentiment right now? What's it feel like out there to you? Obviously, you talk a lot in the mining community and the precious metals community as a whole. What are you seeing in terms of sentiments? Are people cautiously optimistic? Is there just very little buzz happening there? What are you seeing?

David Smith: Well the sentiment of the people that produce the metals, I think, is much more positive than many of the people in the investing public. The thing is, as you know, Mike, if you try to base your investment decisions on going with the crowd, you are not going to do too well. You really have to be a contrarian. It's difficult. It's difficult to buy when you see that a lot people think the metals are going to go lower.

But if you wait until they all feel that they're going to go higher, first of all, the crowd is usually not right on the swings. Secondly, by the time you do that, a lot of the price appreciation that you were looking for has already taken place. So, sentiment is an indicator, I think, of an opportunity to buy at a better price and a better sustainable situation when you go against that rather than try to flow with it.

Mike Gleason: How about palladium, David? It's been outperforming the other precious metals lately. Maybe it's now starting to bring gold and silver with it. It was the best performer last year. Now we've seen this before where palladium leads the way among the precious metals. What's behind that correlation and do you see it happening again here?

David Smith: I think we're looking at something very similar to what happened in late 2013, early 2014. David Morgan and I both commented on this on a major article that we had that was published in Prospector News where we noticed that and mentioned that palladium oftentimes, is a leading edge for gold and silver. They'll follow along a bit later. After we wrote that article, palladium managed to serge almost $300 an ounce from where we had been discussing it. Gold and silver were also quite strong.

It may be for different reasons this time, but I think there'll be a similar type of echo effect on that. Palladium is becoming more and more of a situation where you are looking at supply issues. And demand, not only from industrial, but also from investors is ramping up.

Mike Gleason: So even though palladium is maybe towards the top end of a trading range that we've seen for several years now, this $750 to $800 level, do you still think there's some value there, or maybe is it better to look at some of the other metals over palladium?

David Smith: Well obviously, it would have been better to buy $100 lower, but the thing is, I think, is one of the things that the market is not totally discounting is that there's been a very large withdrawal of physical supplies from one of the major ETFs, which indicates that there's demand out there for palladium, which is maybe greater than what the market thinks.

So, you have the price of the metal itself and the ETF trading about where it was a year or so ago. Yet, the supply situations have deteriorated significantly. I think palladium is going to be one to watch and I think the possibility of much higher prices for it and then for gold and silver, for their own unique reasons, is really something that is a high possibility. It's not a probability.

Mike Gleason: Switching gears here a moment. It seems the political and banker class would like to escalate the war on cash this year. Eliminating cash has been a popular topic of conversation at the Davos World Economic Forum.

The rationale for cracking down on cash always revolves around the idea of making it harder for drug dealers and tax cheaters to operate. None of these people want to discuss the merits of privacy, or the implications for liberty if every transaction can be monitored and controlled by government and their partner banks.

In the short run, a war on cash could be very good for precious metals, as owning physical gold and silver is a great alternative to cash. But maybe we'll see officials try to slam the gate shut on people switching to metals.

So, do you think they can get away with eliminating and even outlawing cash in the U.S.? And do you see this happening any time soon, and are you looking for any surprises there in the war on cash?

David Smith: The timing on these things is really unpredictable. No one can predict it. For example, when was it November that Modi in India decided to outlaw 85% of the cash and have it turned in for a new cash unit. No one really expected that except for the people in the know, of course, that went ahead and changed their finances ahead of time.

I do think that it's one of two steps forward, one step back on the part of central governments. They really want to push us into a digital currency, as you mentioned. The implications for that are profound. And they're all negative.

It's a convenience factor that they push that, "We won't have to carry dirty cash around." The point is you lose when you become a digital situation only, you lose all your privacy. You lose your flexibility.

Also, what's really degrading, from a social standpoint, is that you have a situation where the implication is that if you're using cash, for a transaction, or you have it that you must be a criminal. So, you become guilty until proven innocent rather that innocent until proven guilty. That really degrades the social contract that governments and citizens have.

I do think we'll see more efforts of that, not only abroad, but also in this country. People should consider, when they talk about eliminating the $100 bill because that's what drug dealers use, that's really a farcical comment.

The sad point is that the $100 bill today has the purchasing power of a $20 bill from the 1960s. We're looking at something that even has so much less real value than perceived. And that certainly has not been the case with precious metals. They have done quite well. They're going to continue to do well.

I think even if we have a so-called war on gold, that you talk about, which could happen at some point, it'll probably take the form of trying to have windfall profits taxed on people who've made more money than they ever expected when the metals go through the roof.

And so, that's, to me, is not something to avoid buying the metals because that could happen. The gold and silver are the last resources in terms of true money that has gone on for thousands of years. They've outwitted all the government schemes before. And I think they'll continue to do so in terms of their support by the people.

Mike Gleason: We had Keith Neumeyer from First Majestic Silver on the podcast last week. And we talked about the recent Deutsche Bank settlement for rigging gold and silver prices and the evidence they have turned over, which implicate other big banks. So far, Keith has had trouble recruiting other miners to join him in exposing and criticizing the manipulators.

Perhaps people have given up on the idea that anyone can actually hold these banks accountable. The regulators have certainly failed. But this action in Civil Court might have an impact and it might even get some of the regulators to take action as well. What do you think the chances are for investors in the metals to finally get more honest markets and maybe even some justice here?

David Smith: First of all, I really laud what Keith is doing and has attempted to do. He's been one of the most outspoken in the industry. I think more of the CEOs are going to come onboard with him over time. But you always have to have someone to stand up and get the ball rolling. And I think the biggest effect that we can predict is very predictable is that we don't know how these court cases are going to end up, or if they're going to expand, or whatever.

But we do know that this is just one more chipping away at the foundation of confidence that people have in their institutions and in the veracity and truth of the financial institutions and the banks. This sort of thing is just one of even more revelations that we're going to have in this regard.

That's the whole thing that people need to understand is that confidence is really the only thing that holds all this stuff together. When people lose confidence in their institutions and in their paper currency in their pocket, this is going to have a very huge effect on the demands for the precious metals. And this is while we're meeting more and more signs of the supply being called into question over the coming years of both gold and silver.

People that wait around and think that they'll just take a position when all the ducks have lined up, they're going to be sadly disappointed, I believe. Prices will be much higher and premiums will be much higher as well, too. So, any perceived benefit they're going to get by waiting around for lower prices, I believe, will be more than offset by the increase in premiums and the question of supply.

Mike Gleason: What do you have to say to the guy who just thinks this manipulation in the metals markets can go on forever? At some point, we do have to have some consequences for suppressed prices… in terms of supply, new exploration, correct?

David Smith: Yeah, I understand the view that you just expressed that people would feel a little bit concerned that could this go on forever? It seems like they're all-powerful. What I've learned, as a student of history, is that at great turning points and inflection points in history, when you looked at the evidence that was available at the time and you looked back on it, it appeared that certain forces could never ever be turned around and that that was the way it was going to go forever.

Oftentimes, you were looking right at the precise point where that seeming strength was actually a tremendous weakness. When things turned around, it happened very quickly. With our Internet capability for communication and whatnot, it'll be faster than ever.

I think trying to pinpoint this, first of all, none of us can predict when it's going to occur, but it is going to occur. We're going to have a massive breakdown in the system, which has been able to defraud investors of billions of dollars over the years.

When it does happen, it will happen very quickly. We'll wake up one morning and everything will be different. If we haven't prepared for it, we're going to be just watching rather than to be able to participate. We'll be forced to react.

I do think that people just need to hang in there. We're not going to be having this conversation too much farther down the line, before things have changed in a fundamental way. It will be too late for people to just continue to wait when the evidence is on the table.

Mike Gleason: Lots of metals investors would like to know what a Donald Trump presidency will mean for metals prices in the months ahead. He's going to be inaugurated here tomorrow… we're speaking on Thursday. I've been asking this question to nearly every guest we've had on for the last couple of months. In our opinion, it's just very hard to predict.

For example, he was quite critical of the fed and artificially low interest rates at times. He has also said he sees slow interest rates as an opportunity for the government to borrow a lot of money cheaply. And it doesn't look like he has any issue anymore with Janet Yellen heading up the Fed. So, what do you think a Trump presidency will have in terms of an impact on the metals markets, David?

David Smith: I think it will have massive volatility. There's something to consider, too, is it's beyond what would Trump like to do, or what does he say he's going to do, this type of thing. What's his philosophy? That one side of the teeter totter, but the other side is what is he going to be able to do? There's so many forces out there that arrayed against what he wants to do. There are others that are for it. That tug 'o war is going to be taking place not only in the public opinion, but also in the back rooms. How that plays out is anybody's guess.

I'll tell you one thing. I would feel very uncomfortable not having a position in the metals going forward with all the uncertainty that we're having not only in the United States, but around the world. It's almost an order of magnitude more than anything I've ever seen in my life.

Anybody that thinks they can tease out the details and be predictive about how that outcome is going to be, I think, is taking a lot upon themselves that they're not going to be able to do. Watching once you've already come up with your plan and you've executed your plan, I think, is the way to go rather than try to anticipate and be way behind the curve when things do happen.

Mike Gleason: Furthering the point there, as we mentioned gold and silver have looked good here in the first few weeks of the year, David. Now as we begin to close, give the precious metals investing audience out there your thoughts on the idea of waiting for, "A safe price to buy" versus taking a position in physical metals and continuing to dollar cost average.

Basically, what is your advice for folks? You've always had great level-headed insight on the subject of not letting your emotions get the best of you when it comes to investing. Give us your thoughts there.

David Smith: Mike, there are two types of risk in investing. There's information risk where you don't know all the information and no one ever does until something happens. When there's information risk then the price tends to be low in the relationship to when all of the information is known, or most of it. Right now, we have information risk. We don't know how things are going to play out with the early days, months, and weeks of a Trump presidency.

We don't know how he'll be able to work whatever magic he's trying to do and what the response will be. So, prices are under pressure as we speak. When it becomes more clearly known whatever implications that that brings and if that is very positive for precious metals and, so therefore more information is in the market, the price will be substantially higher.

If you want to wait for price risk when prices are higher and go, "Okay. It's safe now. I'll go in." You've given up a lot of the potential for price appreciation. So, you have to take a risk. Being out of the market is just as big a risk as being in it.

When you look at where prices are, where they have been, and inflation adjusted terms also, the prices in here are really reasonable compared to what they probably will be in the reasonably near future.

So, I think the risk award is very good. The nice thing about it, Mike, again we've always talked about this, is the idea of deciding how much you want to contribute to your metals purchase and then buying in tranches.

Buy one third right now, if they've decided to do that. Then attempt to buy a third on lower prices and that works very, very well, because then you're hoping for lower prices. You turned that psychological tool on its head to your benefit.

Another way is to dollar cost average. That takes almost as much emotion out of the market. We're all emotional creatures. But you've got to keep it under control.

As you say, "I'm going devote X amount of dollars every month to the price for the next six months no matter what that price is." you've got your plan. You put it in motion. Every month you buy your metals. You just don't worry about the price; you just do it. That sort of thing makes you able to remain calm and you can have marvelous results when you look back on it, rather than trying to guess the market.

I've heard so many people on these chat rooms talking, "If the price of silver goes down $1.00, then I'll buy." And it gets down $1.00 and inevitably they don't buy. They go, "Well, it could go lower." They carry this thing out. The next thing you know, six months later it's $5.00 higher. They still haven't bought anything. You've got to have a plan. You've got to follow that plan, otherwise you're just going to be watching.

Mike Gleason: Finally, do you have any price targets for gold and silver this year and any other closing comments that you want to share with us before we wrap up?

David Smith: Well I think a big thing is going to be seeing how silver deals with $21 and $22, which is where it topped out last year. See if it is able to chew through that. And if it does, the next target will be $26. I've said for years that that is a huge, huge target. If and when silver can get above $26 and form a platform, then it's really going to be fascinating to watch how it deals with the space between $26 and $50.

Of course, gold would probably be $1,450, $1,500 area. That would be analogous to the gold price. I'm really fascinated to watch this and try to predict when it'll happen, I believe it will happen. I think it's important that people round out their positions and then just sit back and watch rather than to try to look at all the little squiggles and then end up not having a position.

Mike Gleason: Well David, thanks so much for sharing your comments and your wisdom with us once again. We always appreciate your time and your excellent insights. Now before we close, give us a few words on the new book that you and David Morgan finished up late last year, titled Second Chance: How to Make and Keep Big Money During the Coming Gold and Silver Shockwave.

David Smith: Mike, we're very gratified by not only the public response, but the professional response to our book. We think the timing is good and we believe that this is really an opportunity for people to come up with a plan. We discuss how to put that together in a way that works for the individual and then go out and execute that plan.

We believe the potential is going to be absolutely enormous over the next few years as we go into that third and final secular leg of the bull market, which could run three, or four, or five years, or even longer, but it's going to last several years.

If you approach it intelligently and if you've done your own homework and then gotten into the market, I think you're going to do very, very well. And there are two sub topics that we talked about that I think they're very important.

One is creating balance in your life as you're doing this so that you don't become like J. Paul Getty, who became a billionaire, but had no family relationship worthy of the name for his own son. And he missed that opportunity to live that part of his life.

So, we try to help people look inwardly as well as outwardly so that while they're doing this and hopefully doing very well for themselves, they also don't forget about the other things in life which lead to a balanced life.

The other thing, which frankly I've never seen anyone deal with in any kind of a concerted fashion in their writing is how to keep the money that you make. The public tend to ride these booms all the way up and then all the way down whether than to have a plan to sell some of their earnings for really large profits and not keep them continually at risk.

We spend quite a bit of the time in the book discussing how that can happen. We have a unique plan that you can do that once you've looked at the intellectual aspect of it then you tie that into your emotional aspect. And then you put together something that has a very good chance of success.

So, we're excited to have this book out there. We think it's going to be one that is going to be relevant to people for the next several years as they compare things with their own positions. So, we're very excited to get it out there and we're very happy to see the response we're getting.

Mike Gleason: Yeah, great stuff, David. Definitely continued success to you and David Morgan there on the book. Looking forward to hearing how that continues to go. And look forward to our next conversation as well. I hope you have a great weekend. Take care, my friend.

David Smith: Okay, bye-bye now.

Mike Gleason: That will do it for this week. Thanks for again to David Smith, senior analyst at The Morgan Report and regular columnist for MoneyMetals.com and now co-author of the new book Second Chance: How to Make and Keep Big Money During the Coming Gold and Silver Shockwave which is available at MoneyMetals.com and Amazon. Pick up a copy today.