price of silver

Silver’s Price Performance – Better Than You Think

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SILVER’S PRICE PERFORMANCE

Maybe silver’s price performance is not so bad. There is a case to be made that silver has met its expectations; at least relative to gold, that is.

Those who are insistent that silver has huge ground to make up in comparison to the gold price should take special note.

GOLD-SILVER RATIO

Whenever comparisons are made between gold and silver prices, some investors and analysts base expectations for higher silver prices on the fact that a return to the fixed gold to silver ratio of 16:1 is inevitable.

The argument is based on the belief that there is a fundamental justification for the ratio and that the two metals will gravitate back towards it.

In the Mint Act of 1792, the gold price was fixed at $20.67 oz. and the silver price at $1.29 oz. The official fixed prices for both metals were in effect when the creation of Federal Reserve was authorized by an act of Congress in 1913.

When gold peaked in August 2020 at $2060 oz., it marked an all-time high and nearly exact one-hundred fold increase ($2060 divided by $20.67) in price over the past century. This correlates with the ninety-nine percent loss in US dollar purchasing power over the same time period.

The price of silver in August 2020 peaked at $29.26 oz. which was not an all-time high. Also, the multiple increase in silver’s price is less than twenty-three ($29.26 divided by $1.29 = 22.68) fold compared to gold’s one-hundred fold increase.

This means that silver’s price is not keeping up with the effects of inflation. It is not even close to doing so.

In order for silver to match the one-hundred fold price increase in gold at $2060 oz., the price of silver would need to be $129 oz. ($129 divided by $1.29 = 100).

NEW GOLD-SILVER RATIO? 

In March 1931 the price of silver was $.29 oz., having fallen along with other commodities over the decade of the 1920s. Silver’s price had declined seventy-five percent from its high of  $1.13 oz. in June 1919.

The official price of silver was still $1.29 oz., so the amount of silver in a silver dollar was worth nearly eighty percent less than the official government price.

If we use $.29 oz. (a fully deflated price and only one penny off its all-time low of $.28 oz.) to measure silver’s price performance going forward, we find that in August 2020 at $29.26 oz. silver’s increase is now close to one-hundred fold and matches the one-hundred fold increase in gold.

Calculating a ratio for the two metals yields a considerably different result than the official 16:1 number. When we divide the gold price of $20.67 oz. by $.29 oz. for silver, the result is a ratio of 71:1, rather than 16:1.

That compares favorably with the ratio of 70:1 resulting from the calculation using the August 2020 highs for both metals ($2060 oz. divided by $29.26 oz.).

CONCLUSION

When comparing silver’s price performance to gold’s, measuring from Depression-era lows for silver is more realistic than using the $1.29 oz. fixed price.

Investors and others should reconsider any pronouncements claiming that silver  is undervalued relative to gold.

If, however, you think that there is merit in calculating and relying on any gold-to-silver ratio, please keep in mind the following:

  1. The current gold-to-silver ratio is 78:1; not 16:1
  2. The ratio of gold prices to silver prices has trended higher in favor of gold for more than forty years
  3. The gold-to-silver ratio will continue to widen in favor of gold as long as the US dollar continues to lose purchasing power

(also see Gold-Silver Ratio: Debunking The Myth and Gold And Silver – Fundamentals Be Damned)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

Price Of Silver – 100 Years In The Making

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Sometimes fantasy becomes reality. At other times, a dose of reality will temper fantasies of outsized and unjustified proportion.

Some silver investors and analysts could use a dose of reality. Below is a chart of silver prices dating back to 1915…

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Waiting On Silver

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Expectations still abound for the long-awaited, vertical leap in silver prices.  We are told it is inevitable; and that it is supported by solid fundamentals. Those fundamentals include supply deficits, a return to the 16 to 1 gold-silver ratio, increasing monetary demand for silver, etc.

However, an examination of those fundamentals reveals a different picture.That picture is inconsistent with the call for higher silver prices.

SILVER SUPPLY & DEMAND, RATIOS

The supply deficits (gaps in consumption over production) have been talked about for decades.  In the 1960s and 1970s they were the principal fundamental justification in the case for higher silver prices.

Throughout the twentieth century, industrial use of silver increased to the point where the consumption of silver eventually exceeded new production. This is the start of the consumption/production gap to which people refer. The government  then became a willing seller in order to keep the price down.  The specific purpose was to keep the price from rising above $1.29 per ounce. This is the level at which the amount of silver in a silver dollar (not Silver Eagles) is worth exactly $1.00.

The huge price gains for silver that occurred in the 1970s were largely attributable to years of price suppression prior to that. Those years of price suppression, though, were preceded by decades of price support.

Neither price suppression, nor support, are significant issues at this time. The primary imbalance in supply and demand was corrected in the 1970s. If it hadn’t been, the silver price might be much higher than it is.

Expectations for a return to a 16-1 gold/silver ratio will go unfulfilled. The gold-to-silver ratio that existed one hundred fifty years ago was mostly the result of political influence and appeasement. There is no fundamental reason which justifies any particular ratio between gold and silver. (see Gold-Silver Ratio: Debunking The Myth)

Gold to Silver Ratio – 100 Year Historical Chart

As can be seen in the chart above, the gold-to-silver ratio continues to widen in favor of gold.

SILVER FUNDAMENTALS

Silver is an industrial commodity. Its primary demand is driven by – and its price is determined by – industrial consumption. Any role for silver as a monetary hedge is secondary.  This is true even in light of the significant increase in the amount of silver used in minting bullion bars and coins; particularly Silver Eagles.

The fundamentals simply do not support the bullish expectations for silver. Also, there are fundamentals that make silver vulnerable to a big price drop.

Deflation is a more likely near-term possibility than hyperinflation.  True deflation results in a decrease in the general price level of goods and services.

As an industrial commodity, the silver price would reflect the full brunt of deflation’s effects. The depression-era low for silver occurred in late 1932 at $.28 oz.  This low coincided with the stock market’s low.

Something similar happened in March-April 2020, when both silver and stocks declined by thirty-five percent.

Another possibility is that we might continue for several more years with relative prosperity and disinflation. This would not stop further price declines for silver.

SOME HISTORICAL PERSPECTIVE

After it peaked at $48.00 per ounce in 1980, silver’s price declined ninety-two percent over the next thirteen years. It reached a low of $3.57 oz. (February 1993) during the boom years  of the 1990s.

It has been ten years since silver last peaked at close to $50.00 oz. At the current price of approximately $25.00 oz., silver is cheaper by one-half. This is shown on the chart (source) below…

Silver Prices – 10 Year Historical Chart

 

Given that, does it matter much that silver has doubled in the past year. All of that increase is just a matter of recovering some lost ground.

Historically speaking, most of the reasons people give in support of dramatically higher silver prices, lose credibility when one looks at the facts.

CONCLUSION

Silver is ineffective as a monetary hedge because it is not a store of value. Silver would need to be over $100.00 per ounce right now to roughly approximate what gold’s current price of $1800 oz. reflects regarding the loss in purchasing power of the US dollar over the past century.

It is not remotely close to that number and there is no historical precedent to expect the gap between gold and silver to narrow in silver’s favor. As long as the US dollar continues to lose purchasing power, the gap between gold and silver prices will continue to widen in  favor of gold.

In addition, on the few occasions when silver has increased in price dramatically, it has given up most or all of the gains in short order.

In other words, there is likely more downside ahead for silver’s price. And it could be quite significant.

(also see $100 Silver Has Come And Gone)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

 

Silver Loses Its Mettle

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SILVER LOSES ITS METTLE

Actually, it is silver investors who might be losing their mettle. Coping well in the face of a fourteen percent decline in the vaunted white metal must be very difficult.

The size of that decline happens to be right in line with the major stock market indices, all of which (Dow, S&P, Nasdaq) lost similar percentage amounts this past week. No better, no worse for silver; but it is ironic.

We have been told over and over that silver is a hedge against that type of stock market action.  Also, we’ve been told that silver would be more explosive that its well-respected brother, gold. It was – sort of. The correct word is implosive.  

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$100 Silver Has Come And Gone

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$100 SILVER…

In January 1980, the price of silver peaked at just under $50.00 per ounce. From its low in October 1971 at $1.27, silver had risen thirty-nine fold in little more than eight years.

There was talk about higher silver prices, as much as $100.00 per ounce and more. Yet, only a few months later, silver was down to $10.00 per ounce. That amounted to a decline of nearly eighty percent from its peak.

Silver bulls were not deterred, however. They continued to stress the “fundamentals” which would lead to higher silver prices, but their dreams turned into nightmares. The price of silver continued to fall.

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Silver Is Cheap – And Getting Cheaper

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Silver is definitely cheap. By almost any standard of measurement, the price of silver is cheap. It is cheap relative to gold, it is cheap compared to its recent peak in 2011, and it is cheap historically. For some, that apparently means that silver is a bargain, too. I’m not so sure.

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Silver’s Next Big Move

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SILVER’S NEXT BIG MOVE…

Eight years ago this month, silver started its “next big move”.  And that move continues today. It is awesome to behold. See the chart (ten-year history of silver prices) below…

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Implosive Silver Vulnerable To Big Price Drop

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IMPLOSIVE SILVER

Admittedly, it must sound encouraging, and even exciting, to hear proclamations that a “silver” lining is now apparent in the metals complex. Or that a silver “blast-off (is) about to happen”.

Expectations abound for the long-expected, vertical leap in silver prices that never seems to come. And we are told it is supported by solid fundamentals that include supply deficits, a return to the 16 to 1 gold/silver ratio, increasing monetary demand for silver, etc.

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