Mike Maharrey: Greetings. Once again, I am Mike Maharrey and I’m joined today by Peter Krauth, a fine analyst who in my opinion has written one of the best books out there relating to the Silver market. Peter, thanks for coming on the show. How are you doing today?

Peter Krauth: I’m doing well, Mike, and always a pleasure to be here and chatting with you.

Mike Maharrey: Yeah, absolutely. It’s exciting day to chat with you because this morning as I was working on my podcast, I went and I checked the prices and I saw silver, at least briefly, was trading above $59 an ounce, which is really pretty amazing. We finally got above $50 an ounce in October and then we had a correction, which I think was kind of expected, but it didn’t last long. Are you surprised at how shallow that correction turned out to be and how quickly we’ve kind of resumed that upward march?

Peter Krauth: To be perfectly honest, I am a bit surprised. I am and I’m not. Let me explain first. I mean I’ve been around this so long that on the one hand I thought we would see given that really, really strong advance, we saw from let’s say early to late spring all the way through to October. I did see, did expect that we would see more of a correction. Maybe that will still come to pass. I don’t know. However, what I will say is that the part of me that is not surprised is that I believe that now a lot more investors have awoken to the situation and they have decided that they want in. And so there is a lot of cash sitting on the sidelines simply waiting for any of even the smallest dips to just go ahead and buy in these, even if it’s in these small increments and that it’s almost as though that will not allow more of a meaningful correction to happen.

Peter Krauth: And maybe what we end up getting, which we’ve had multiple times historically in silver and even in the last, let’s say last few silver, silver bull runs, we get these consolidation phases instead of larger corrections. And so, you can have corrections in two ways. You can have them in terms of percentage and you can have them in terms of time. So, you could have less of a pullback, but a longer sort of sideways move. We don’t seem to be getting much of either, and that’s what is a little bit different this time around. But if anything, we may end up in more of a consolidation phase here. Yeah, I mean those are I guess some of my thoughts on what’s been happening.

Mike Maharrey: Yeah, absolutely. I was surprised too. I kind of thought once we got in that $51, $52 range, it would kind of test back down, but it’s really been vibrant. You mentioned the fact that there are a lot of folks that are kind of waking up and starting to pay attention. Do you think that the fact that gold is trading between forty one hundred and forty two hundred, that’s very expensive. Maybe it’s having some people go, maybe we’ll look over here at silver. You think maybe that dynamic is at work as well?

Peter Krauth: Absolutely, and I’ve been saying that for the longest time. I even talk about that in the book and how once people start to gold is king, that will always I think be the case. And so, people will see that follow that first. And I guess a lot of people have started to hear and realize that gold is over $4,000, not that long ago it was under $2,000, and so it’s more than doubled in a matter of a few years, a couple of years, and people are realizing that it’s really holding up. There are a lot of big fundamental drivers for gold to stay at where it is and climb higher, and they’re saying, geez, it’s funny. Someone actually, who’s not in this business at all recently said to me, I was just shocked by this. He said to me, he goes, I don’t feel like I own enough gold. This is not someone who follows this space at all. I can tell you. And that really, really surprised me when I heard that. I thought, okay, this is probably quite representative of, certainly not everybody, but a significant portion of the population that has perhaps some accumulated investments, liquid investments, and realizes that they need to have not just inflation hedges, but things that have some really strong potential upside. And when they see gold over $4,000, they’re starting to look at alternatives. And I think that is part of what’s driving silver right now.

Mike Maharrey: Yeah, I agree completely. I’ve had some of those anecdotal experiences as well, folks that are friends that aren’t really engaged in, they’re not reading the financial news every single day and they’ve come to me and said, “Hey, Mike, I know you do gold and silver. Can you tell me a little bit about it? How do I get in? Should I have some?” And there’s definitely a growing awareness. I mean, you can’t ignore it. For years, the mainstream has kind of ignored precious metals and it’s hard to ignore the fact that they’re the best performing assets out there. And you talk about silver, it’s doubled this year almost. It’s pretty amazing.

Peter Krauth: It’s phenomenal. In fact, a little, I think interesting point to raise here is that I think it’s Morgan Stanley that a little, just a little while ago said that there new sort of standard portfolio allocation rather being 60/40 is 60/20/20, and that 20 goes from, I believe it’s the bond portion, it goes from 40 to 20 and the other 20 goes to gold. So I mean, if someone like that is willing to stick their neck out like that and say, this is how your portfolio needs to be set up for the long-term going forward, that is huge from a mainstream investment bank like that. So I think hearing these kinds of things from these kinds of players is starting to trickle down to more mainstream investors and they’re hearing it, they’re getting it, and they’re acting accordingly.

Mike Maharrey: Yeah, absolutely. And since he made that statement, I’ve seen that pop up in other articles and other mainstream interviews, other banks. So that’s starting to percolate out there. And when you think about the fact that you’re talking about a 20% allocation to precious metals, even if you distribute that between gold and silver and maybe miners, most people aren’t anywhere near that allocation. I think that if somebody has 2% of their portfolio in gold, they’re probably at the higher end of that curve.

Peter Krauth: Mike, I have some interesting data on that. In fact, it’s Oxford economics, which I think about two years ago they put out some research on silver, and what they did was they looked at the prior couple of decades or so when they looked at allocation to silver, just silver and the average, they split it out to sort of low, medium and high risk portfolio, but let’s just pick medium risk. So they said to have the optimal allocation to silver, in other words, so where you get the biggest benefit by being exposed to silver with not only return, but also by lowering your portfolio volatility was 6%. Well, the average allocation was 0.2%. Wow. And it was indirect exposure to silver. So you’d need to, the average portfolio would need to 30 x its allocation to silver just to get the optimal allocation. And they were making forecasts going out tenure.

They looked at the past and then they said, okay, based on what we expect, how gold is performed in the previous, say couple of decades and what they were forecasting going forward, they said you need to have a 6% allocation in your portfolio to silver to have that optimal, a medium risk portfolio to have that optimal allocation. So, imagine if we even move slightly towards that. I mean, I don’t think we’re going anywhere close to it frankly, but even if we move slightly towards that, just to have 2%, you’d have to 10 times people’s exposure. That’s just off the charts. The implications are huge. And I was actually at a, so McGill University, I’m an alumnus, they started, to their credit, some young students started the McGill Mining Club just a little while back. So I was asked with actually a guy who’s starting to get quite the reputation in this sector.

His name is Michael Gentille, and so he’s an investor in the junior minor space, so he was there as well, a couple of others. And they asked me to come and speak about silver. And the first chart I put up was not even about silver, it was about commodities and it was the Goldman Sachs commodities index to the S&P ratio. So, what it is, is you’re dividing that index by the S&P, and this goes back, this chart was like 50 years or something. And other than in say 2000 or so when it was a secular bottom, we are arguably at the next lowest level we have been in the last 50 years. So despite what, and they’ve actually done well over the last couple of years, I will say in gold and silver in particular, we are still at nearly the very bottom.

And so I was telling these students, I said, if you grasp this chart, this is the most important chart I can put in front of you right now. If you can grasp what this means and where we are, where we stand and the potential, I said, you just have the most exciting opportunity ahead of you. You don’t even have to spend a ton of time getting involved in researching stocks or whatever. Just make sure your portfolio has a reasonable allocation to commodities, even say whatever, 20% or something. And over the next decade you are going to do extremely well. And it could make up for a lot if you wanted to continue to maintain a regular exposure to stocks and to bonds and those, let’s say my opinion will not perform all that well, this could go a long way to making up for underperformance in the rest of your portfolio. So that’s just some of the stuff that I think is out there. People need to realize the opportunity and commodities as a whole is just off the charts.

Mike Maharrey: Yeah, absolutely. Because it’s clear that we are rotating into an inflationary period despite all of the rhetoric you get from the powers that be that, oh, inflation’s, tamed. Now it’s not, we’re back to the money creation. So that bodes well for commodities because you’re going to have more dollars chasing these finite, real hard assets. And

Peter Krauth: Exactly. I mean in my recent presentations, I put together a chart which shows the average inflation pre COVID and now the average inflation since we, it’s gotten more tame frankly since sort of mid 2022, and it peaked at 9% in the us. So pre COVID we averaged about 1.5%. Since it’s kind of dialed back, we’ve averaged, which is, I’m going to say early 20, 23 or so, we’ve since averaged 3%. So it’s double what it was pre COVID. The fed’s target is still officially 2% and they’re cutting rates.

And I think that’s what silver and bold are sniffing out, have been sniffing out all spring and summer, knew this was coming and said, alright, that means clearly central banks have caved. They know there’s no way they’re getting inflation under control. They will sacrifice inflation, they will sacrifice the currency. They’d rather simply try to support jobs and the economy and that’s what they’ve chosen to do. And if they’re cutting rates when inflation is 50% higher than their target, then all bets are off. It’s a game of chicken, they’ve caved. And so it’s go time. And that’s what I think what we’re seeing.

Mike Maharrey: Yeah, I think 3% is the new 2%, to be honest. I don’t know that they’ll ever say that, but I think they’re okay with 3%.

Peter Krauth: Exactly. Frankly, Mike, I think we’re going to start to see over a little bit of a longer time period, I think we’re going to start to see 4% as the new 2% and things like bargaining power by labor, things like the end of globalization, the ongoing energy transition, and now huge, massive renewed defense spending globally, I think all of these things are going to support higher structural inflation. And it is in many ways a repeat history rhymes. Doesn’t necessarily repeat, but so it’s a big rhyme I guess on the 1970s, and I think that’s probably our best analog.

Mike Maharrey: Yeah, absolutely. I was talking to another analyst a couple of weeks ago, and he made that very same point, that there’s a lot of analogies that you can draw between the seventies and where we are today,

Peter Krauth: Mike, if I may, one of the most important perhaps points that we can compare, but without an analogy is, and this I do clearly talk about in the book the difference, the big difference, and I’m sure it’s globally, not everywhere, but in at least the developed world, it’s probably comparable. In the US the debt to GDP in the seventies was 35%. Today it’s 125%. So, if anybody thinks we’re going to get a Volker who’s going to step in and hike rates to 18, 20%, you can completely forget about that. That is simply not happening. That if you want to destroy an economy within six months, that’s what you need to do today. And frankly probably lead to a revolution that’s not going to happen. It’s just simply not going to happen. And so, if anybody thinks or if anybody is wondering about the odds of seeing low and or lower rates, that’s the best sort of support I can give to that kind of expectation.

Mike Maharrey: Yeah, absolutely. On my podcast today, I titled it, “Math Wins,” and I talked about some of these things because there’s so much political spin. Oh, we’re going to give rebate checks for all this tariff revenue. Well do the math. It doesn’t work.

Peter Krauth: Exactly!

Mike Maharrey: I want to talk a little bit about the nuts and bolts of this silver market. We had this silver squeeze in October where we saw a significant shortage of metal in London. A lot of that was kind of driven by demand in India. In fact, here at Money Metals, we sent several pallets of 1,000-ounce silver bars to India, believe it or not.

Peter Krauth: Oh wow. No kidding.

Mike Maharrey: So, that shows how much displacement there was in the physical market. So, we moved a bunch of metal from New York to London apparently, and it kind of eased the squeeze. And so now everybody’s like, oh, everything’s okay now. And yet we’re still seeing silver climb. And I saw an article the other day that said, well, now we’re starting to see some metal shortages in Shanghai. Is there something more fundamental going on here than we just don’t have the right amount of metal in the right place?

Peter Krauth: Yes, I absolutely believe that. And I was going to bring up that very same point. I’m actually looking at a chart right now that shows silver stockpiles in China dating back to 2015. So, it’s more than 10-year chart. And we are at, I’m going to say nine year lows. They’ve just been falling and falling and falling, and they peaked in, I’m going to say mid 2020 or so. And yes, a bunch of silver from my understanding was shipped to London to help at least temporarily meet the demands and the shortage there. But that’s just, it’s a shell game. All you’re doing is moving around a little bit of silver. There still isn’t enough of it. So, I mean, I might have mentioned this to you before in a previous interview, but about a year ago, a large silver miner told me they sell half of their production to China and the other half to the West.

And at the time, and I would assume it’s the same if not worse, today, the Chinese were saying to them, we will pay you $2 over spot for every ounce and we will pay you two weeks in advance of delivery. And that was how badly they needed their silver. I can’t imagine that has changed. I can only imagine it’s probably gotten worse. So yes, I think there is a big, the market is extremely tight. And you may have seen or heard there was some talk over the last few days, I’m not sure if this is being confirmed or not, but I believe it’s JP Morgan moved their trading desk from New York to Singapore over the Thanksgiving weekend. So as far as I know, no press releases. So, a disclaimer here, I’m not saying this is a fact, but I’m hearing this a lot in social media and I don’t know that it’s being denied. So if that’s the case to me, that says too that it’s the physical markets which Shanghai are starting to become the go-to markets to track the silver price as opposed to the futures markets. That’s becoming a lot more important today. And that’s a sign of a very, of let’s just say more perfected price discovery.

Mike Maharrey: Yeah, I like the image of a shell game because if folks that have played, there’s always one shell where there’s nothing underneath. Right, exactly. Or two. So what does that tell you? It’s not that the metal’s in the wrong place, it’s not that it’s under the wrong shell, it’s just not enough metal to go around. That’s right. That’s a pretty fundamental thing. So that kind of leads to the next question. We’ve seen silver double in price, but silver mining ETFs have really only performed, I don’t think they’ve performed as well as the physical market has. When will there be a substantial leverage in mining stocks compared to physical in your view, and what’s it going to take to produce more metal or can they even produce more metal?

Peter Krauth: So, the first part of your question I would answer by saying it’s probably not going to take all that long. I think that as we see, there’s a bit of a trickle-down effect we have seen, and even that has been muted for a few reasons. So what I’m talking about is let’s say the larger producers of both gold and silver, I saw a fantastic chart by a friend and colleague in the space by the name Tabby Costa. If anybody wants to follow great charting, follow Tavi Costa on X or LinkedIn, he does a fantastic job. He’s with Crescat, and he had a chart that showed, although the prices of the large producers, gold and silver miners had risen pretty dramatically over the past year, they’ve actually gotten cheaper because the gold price had moved up so much, the gold price had moved up faster than their share prices.

So, their price earnings went down, their price earnings ratios went down, they got cheaper as their price share prices went up. And so we’ve started to see some moves in gold, but especially at frankly in past year or so in silver where there were three big acquisitions that took place, there’ve been a couple more since. And I just think that this happens over time. We’ve seen these big names move, plenty of the juniors have moved as well. And we’re starting to see, I think rotation by generalist investors from general stocks, which these days seems to be completely dominated by tech into where there’s some real value and there’s clearly some real value. And based on that chart where the value’s gotten even deeper, frankly, as the prices have moved higher. And so it takes some time to work its way through. But I think we could easily over the next couple of years have some tremendous returns in this sector. I can tell you that I’ve got two newsletters. One is a subscriber based one, one is a free one, and the response over the last say six months has just been tremendous. A lot of new subscribers, people are just hungry for information, want to know more about this space, which companies are interesting or better for whichever reasons. And so yes, I think this will absolutely come and trickle down. Mike, I have to admit, I don’t remember. What was the second part of your question?

Mike Maharrey: That was a great answer to the first part. That wasn’t really a very good question, to be fair. That’s okay. I plugged too many things in one question. But the second question was just thinking about the miners. Can they up production to help kind of fulfill, we’ve had five straight years of a market deficit where we’ve seen supply falling below demand. So, can the miners catch up?

Peter Krauth: So to me, the quick answer to that is no, they cannot. In fact, even the Silver Institute back in, I believe it was April of this year, forecast that we would continue to have over the next five years, not only ongoing annual deficits, but we would set a new record deficit over the next five years. So the miners, they cannot keep up. We peaked in terms of mine supply back in 2016 at 900 million ounces, we’re down around 830 million ounces and demand has gone up 20%. So, demand up supply down, I mean that part of it is Economics 101. It’s compensated by price, and that clearly has helped explain why the price finally has caught up. I’ve been saying it for three years. It was going to happen. It started to happen in a big way over the past year and a half. Silver prices, as you said, this year alone doubled.

And so, we’re going to see more of this. It takes 10 to 15 years, let’s say even potentially longer that than that from the point of discovery of an economic deposit to the time when it starts to come out of the ground and actually be produced. And so of course, what helps absolutely is these much higher silver prices because there are now clearly more deposits that become economic. So that’s interesting. That can help supply, it’s a question of time, getting these things improved, getting them built and then getting them producing. And then as far as, if you look at these, just mentioned that there were these bigger names that went out and bought out other competitors over the last year or so. Well, that doesn’t help supply. All it does is it changes who now owns that mine and is supplying it, but it doesn’t add a mine to the market. All it does is shift who the new owner is. So, it’s supply will remain, mine supply will remain very constrained. I think there was a small bump up in, or there’s an expected small bump up in recycling that makes sense with higher prices. But as far as people selling hordes of silver, there’s arguably several billion ounces of silver owned by individuals that could come back to market. I’ve been saying for a long time, and frankly based on this exacerbated supply issue recently, I think it, it’s supporting my view that this metal comes back to market at higher prices, not even at $50, $60. It’s going to have to be substantially higher than that.

Mike Maharrey: Yeah, yeah, absolutely. I agree with that completely. I’ll give you a real quick factoid along those lines. If you take the cumulative market deficit shortfall over the last five years, and that’s including the projected shortfall for this year, it is basically the same amount as one year of mine output. It’s pretty amazing when you think about just how big that shortfall is. I’ve got about 35 more questions for you, but we’ve run out of time. So I’m going to be respectful of your time. I know you’re busy, but I do, before we go, I definitely want to give you an opportunity to point folks towards your newsletters, tell people about the book and where they can avail themselves of more from Peter Kraut.

Peter Krauth: Okay, thank you, Mike. So yes, I publish a subscriber based newsletter called Silver Stock Investor. You can find more about that silverstockinvestor.com. And three years ago, I published a book called The Great Silver Bull, which is all about the macro setup for precious metals and silver, in particular. And then I talk about the history of silver supply demand, how to invest, and ultimately where I believe the market will go. So you can find that on Amazon. And I’m very active on X and on LinkedIn, so you can certainly find me there as well. And happy to interact with your viewers and your listeners.

Mike Maharrey: Yeah, absolutely. And every time I have you on, I brag about this book, it is fantastic. And people might think, oh, he’s just sucking up to his guest. I like you, but the book is good. It stands on its own. So folks need to check that out. Just if you think I’m wrong, then you can come at me.

Peter Krauth: Thank you, Mike. Thank you.

Mike Maharrey: I really do appreciate you taking the time and what an amazing time. I’m sure we’ll want to get you back on in the new future because there’s just so much going on and it’s really exciting. I’m holding onto some silver. I bought at $12, so I like watching this. It’s fun.

Peter Krauth: Mike, if I can sort of maybe leave your listeners with one final thought

Peter Krauth: In terms of the potential for mining stocks, silver mining stocks. The last data I have, which is I think from, let’s say the last month or so, the silver, the public publicly investible silver mining industry that includes explorers, producers, royalty companies. Everything is about 50 billion. The publicly investible gold mining industry is 950 billion. So it’s about 5% of all of gold public mining companies. So when people decide they want to invest in silver mining, there are so few names for that money to go into. I like to quote Doug Casey here. He says, it’s like trying to flow the contents of Hoover Dam through a garden hose. There’s only so much capacity. The bandwidth is very small, and that just makes these names explode. So that just gives people some idea of the kind of potential there is going forward.

Mike Maharrey: So much potential in this market. And it’s amazing that we’re talking about potential still when we’ve seen the price gains that we’ve seen in the last year. It’s amazing. And same thing with gold. I mean, I think gold still has a lot of upside. All of the things that have supported this gold bull market are fully in place. Exactly same thing with silver. Well, again, thank you so much for taking time out of your day. I hope you have a wonderful holiday season, and once we get into the new year, we’ll have you back on again and we’ll see what’s going on with silver when we get to that point.

Peter Krauth: Thank you. Thanks so much, Mike. I.