Precious metals guru Morgan: Silver could fall more than 10% before soaring to $75

The new normal could be $75/oz. silver. In this exclusive interview with The Gold Report, David Morgan, editor of The Morgan Report, maps out a path for silver that could sink by $5/ounce (oz.) during the summer pullback and then bounce up to $75/oz. to establish a new base level. A consistent Silver Institute Production Cost Standard could help investors make smarter decisions during the coming upswing.

Companies Mentioned: First Majestic Silver Corp. - Franco-Nevada Corp. - Royal Gold Inc.

The Gold Report: In your Morgan Report, you have written extensively about the impact of global financial issues on gold and silver prices. At least temporary solutions have been found for the euro-Greek tragedy and the U.S. debt limit debacle. Will this give the U.S. dollar a boost at the expense of precious metals?

David Morgan: It is getting more difficult to predict what the market reaction will be to specific events. As people figure out that there really is no solution to the global financial system without a great deal of pain and some defaults along the road, more will seek the safety of precious metals. So, even when things calm down for the moment, it does not mean the precious metals will not get pushed down. You could see gold and silver react to the downside, perhaps dramatically—a $5/ounce (oz.) drop in silver is not entirely out of the realm of possibility. My best guess is we will see some pullback going into mid-August.

TGR: Today, gold hit $1,700/oz. during what is normally a summer slow season. Can this climb continue? What are the drivers?

DM: Yes, it can continue and the driver is uncertainty. Look at all the problems in the currency markets. It seems interbank lending is starting to freeze up in Europe. This was one of the main factors contributing to the financial crisis of 2008. So there is much to consider and it boils down to the fact we are in the final stages of a currency depreciation on a global basis.

TGR: A lot of the economic indicators—GDP and consumer confidence, in particular—are coming in weaker than expected, not to mention the Standard and Poor's downgrade of U.S. debt. Could we see another 2008-style sell-off, and how would that impact precious metals?

DM: Fundamentally, nothing of substance has changed since 2007 except that the banks have lots of money on hand. You have to understand that the silver market has a mind of its own. What happened in 2008 was a silver sell-off that caused a shortage, pushing the physical price of silver at the retail level to around $13/oz. while paper silver traded under $9/oz. on the futures exchanges. Excessive short selling then ran the price from about the $20/oz. level to the brink of $50/oz. The next leg up could take out the $50/oz. level after a few tries and then not look back until establishing a new nominal level of $65/oz.–$75/oz. (more)