Silver

Silver – Dead In The Water for 40 Years

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SILVER IS DEAD IN THE WATER…

…and cheap; it’s a bargain! Buy it now before it goes to – $500? Seriously? One thing for sure; silver is cheaper now than it was the last time we heard such exuberant (irrational?) calls for action.

In fact, the lower the silver price goes, the more fervent are the claims and projections for ever higher and seemingly ridiculous prices. After more than forty years of calls for $100 silver (see $100 Silver – Nothing Has Changed) now we are being treated to fantasy projections of $500 oz.

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Silver Coin Premiums – Another Collapse?

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SILVER COIN PREMIUMS

In 1972, a bag ($1000 face value) of “junk” US silver coins sold for approximately $1300-1350. The average closing price of silver that year was $1.68 oz; hence, the silver content (715 ounces) value was $1200 per bag. The remaining difference was a premium of about ten percent.

A lower silver price would generally result in higher percentage premiums because the face value of $1000 represented a ‘floor’ which limited the risk of holding the coins. In other words, the real investment risk was limited to the amount you paid over the $1000 face value.

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Silver’s Bad Break

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SILVER’S BAD BREAK 

Bad breaks can be tough to recover from. The process can be arduous and can take a long time. Sometimes a full recovery remains elusive and distant.

Silver has a history of bad breaks over the past half-century.  Below is a series of charts that tell the story…

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Inflation Is Killing Silver

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INFLATION IS KILLING SILVER

More than just a few people are buying silver because “it protects them from inflation” –  or something to that effect. Ever wonder if that argument holds up? The chart (source) below indicates otherwise…

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$100 Silver – Nothing Has Changed

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In retrospect, nothing much has changed since I published my original article $100 Silver Has Come And Gone in October 2019.

The price is higher than it was at the time the article was written, and that is certainly positive. However, the net change since then does not alter the fundamental arguments stated in the original article. Let’s review the salient points now.

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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!

Silver Continues To Fascinate – But Why?

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SILVER CONTINUES TO FASCINATE 

After scanning some recent headlines regarding silver, I was struck by the apparent fact that proponents of silver seem almost obsessed. If not obsessed, then certainly fascinated.

At one time in my life I shared that fascination. But over the last fifty years, it has become apparent to me that the optimism regarding silver is out of proportion to its role and purpose. Unrealistic expectations for outsized price performance are not supported by fundamentals.

‘Fantasy’ fundamentals such as the gold-to-silver ratio and the gap in consumption over production are not supportable to any arguments in favor of higher silver prices.

No matter how enthusiastically the claims are made; no matter how outlandish the expectations; no matter how fervent the beliefs of investors and marketers; the silver price won’t provide its accommodation.

SILVER 55 YEARS AGO 

When President Lyndon Johnson signed the Coinage Act Of 1965 into law, the price of silver was $1.29 oz. It was still only $1.30 oz. two years later, in 1967.

Suppose you had purchased silver at $1.30 oz and held it for the past fifty-five years (1966-2021). At silver’s current price of $22.50 oz. your investment would have multiplied seventeen-fold.

That works out to be an annual return rate of 5.321%. That is a pretty good average rate of return.

However, when allowing for inflation, the annual rate of return drops to 1.31%.

In inflation-adjusted terms, silver at $1.30 oz. in 1966 is the equivalent of $11.00 oz. in today’s dollars.

In other words, it took 55 years of patience and long suffering just to double your money.

IT COULD BE WORSE

The outcome above assumes you were fortunate enough to buy silver early enough and at its cheapest price. Most investors weren’t/aren’t that fortunate.

Silver’s first big blowoff came in early 1974 when its price hit $6.74 oz. Two years later, in 1976, the price had retreated to $4.00 oz.

Had you purchased silver then, and held it as a long-term investment, you would have a respectable 3.913% rate of return today.

As in our previous example, though, a respectable nominal rate of return is reduced considerably when factoring in the effects of inflation. In this case, the inflation-adjusted rate of return drops to .262%, barely more than one-quarter of one percent.

Fact: Silver at $4 oz. in 1976 is the equivalent of $20 oz. in today’s dollars.

SILVER IS A TERRIBLE LONG-TERM INVESTMENT

There is nothing in silver’s price history that supports claims for unrealistic expectations regarding its price. (see Silver Is Trapped Below $30)

In direct contrast to what some are saying, the long-term is not kind to silver investors. In fact, silver’s price history shows that the long-term works against and not in favor of silver investors. (see Silver Price – 100 Years In The Making)

Below is a chart included in a previous article (Are Silver Prices Really Cheap…) published May 2021…

In reference to the chart, I said the following: ” even on an inflation-adjusted basis most of the price history for silver is still below $20 oz.” 

At the time the article was published, the spot price for silver was $28 oz. In the intervening six months the price has dropped nearly six dollars per ounce down to $22 oz.

CONCLUSION

Silver is far more likely to disappoint investors rather than reward them. Silver’s price history is indicative of that statement. Expectations for higher prices should be minimized.

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!

 

 

New Fundamentals For Gold And Silver

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NEW FUNDAMENTALS FOR GOLD

When speaking of gold and silver, analysts and investors are always happy to share their viewpoints on the fundamentals for the two metals. Lately, the list of fundamentals seems to be growing.

When someone mentions housing starts and gold in the same sentence, it is indicative that analysis has become suspect, and the resultant observations are likely to be of little or no value.

Inferring correlative activity between gold and a host of other non-related items such as interest rates, social unrest, political turmoil, wars, existing home sales, retail sales, economic activity, etc., is confusing and unsupportable.

So-called fundamentals for gold are lumped into one big cauldron of boiling phrases and sayings. Investors can pick and choose which fundamental(s) suits them.

The definition of the term fundamental (noun) is  “a central or primary rule or principle on which something is based.”  

As regards gold and silver, each of them has one basic fundamental:

1) Gold is real money.
2) Silver is an industrial commodity.

Each of them has a secondary use that is similar to the primary fundamental of the other metal. Gold is real money, first and foremost, but it also has industrial applications. Silver is primarily an industrial commodity that has a secondary use as money.

The basic value of either gold or silver stems from its primary fundamental. This means that gold is valued for its role as real money and silver’s primary value stems from its use in industry. And the primary fundamental for each metal will always be the same, even though there can be changes in the relative relationship of primary and secondary uses.

For example, lets say that gold’s primary role as money accounts for 90% of its assumed value. The other 10% can be industrial uses, such as jewelry. If there is an increase in industrial demand for gold, as a result of increasing demand for its use in ornamentation and jewelry, the relative percentage in gold’s total demand increases. In other words, a possible new allocation might be 85% for monetary use and 15% for industrial use.

What is important to note, however, is that the total demand for gold does not change. The increase in industrial demand for gold supplants the investment demand. Also, whatever changes occur in the relative percentages will never alter the balance of the two in a material way or in a way that inverts the primary and secondary uses.

Primary demand for gold will always be for its use as money; and that value will always exceed any secondary applications in industry by a wide margin.

With silver, the example is similar, except that the industrial and monetary uses are reversed. Whatever changes or increases take place in silver’s use as money will supplant industrial demand by a like percentage. As with gold, the increase in its secondary use and valuation will never override its primary use. Silver will always be valued primarily for its use in industry – not for its use as money.

PRICE CONSCIOUS INVESTORS 

Even if most investors and analysts understood these things (they don’t), then they likely would ignore them – because they are boring.

Investors are fickle and price conscious. Most of them are not interested in value. They want to know when the price of something is going up, by how much, and why. The ‘why’ is mostly an after thought. Usually, ‘why’ enters the conversation after the price goes down when it was expected to go up.

That is when investors and their advisors start talking a lot about fundamentals. Since the fundamentals they talk about don’t apply to gold and silver, whatever logic they use is faulty because it is based on incorrect assumptions. This leads to unrealistic expectations.

Negative news in the headlines seems to be a reason to buy gold. A recent headline even proclaimed “bad news is good news for gold”. Apparently, some investors are thinking and acting with that statement in mind. Unfortunately, simultaneous events do not prove correlation.

So how do we explain gold’s price changes according to its fundamental above?
Gold is not just real money. It is original money. Gold was money before the US dollar. Its value is constant and unchanging. It is the ultimate store of value.

Gold is the measure of value for everything else. Everything else is assessed a value based on its price in gold – in grams, kilos, ounces, and fractional units of such.

This seems backwards to most of us because we are used to valuing things in terms of their price in dollars, or any other currency. But if we learn to understand it, we can better understand the following:

The rising price of gold in dollars does not mean that gold’s value is increasing; rather, it signifies a correlative loss in the purchasing power of the US dollar.

That brings us back to gold’s only fundamental: gold is real money. Anything else is a substitute.

In other words, NOTHING ELSE OTHER THAN THE US DOLLAR IS A DETERMINING FACTOR IN THE PRICE OF GOLD.

What we have said about gold, however, does not apply to silver. Silver is primarily an industrial commodity; and its price in dollars is mostly a reflection of its use in industry rather than its use as money.

Slowdowns in economic activity lead to declines in industrial demand. This is reflected by lower prices for industrial commodities, like silver. In fact, during every recession in the last fifty years – seven of them – the price of silver declined. (see: Prospecting For Silver During Recessions)

(note: silver’s price swoon in March-April 2020 at the onset of the current recession brings the number to eight)

As far as silver’s role as money is concerned, silver has not come close to replicating gold’s increasing price over time.

GOLD PRICE ANALYSIS

The US dollar has lost somewhere between 98-99% of its purchasing power over the past one hundred years.

When the gold price hit $2060 oz. last August, it was a one hundred-fold increase over the past century and represented a ninety-nine percent loss in US dollar purchasing power.

In inflation-adjusted terms, $2060 oz. in August 2020 is nearly identical to $1895 oz. in August 2011. Both peaks equate similarly to a ninety-nine percent loss in US dollar purchasing power.

The increase in the US dollar price of gold from one peak to the next (Aug 2011-Aug 2020) represents the actual purchasing power that was lost in those intervening nine years. 

Approximately midway between the two price peaks, the gold price bottomed at $1040 oz. in January 2016. This was a fifty-fold increase and reflected a ninety-eight percent loss in US dollar purchasing power.

TARNISHED SILVER

Whereas, gold’s price currently is eighty-five times higher than its original fixed price of $20.67 and indicates a nearly ninety-nine percent loss in US dollar purchasing power, silver’s price has risen only seventeen fold ($22.40 oz. divided by $1.29) over the same one hundred years.

In fact, in inflation-adjusted terms, silver is cheaper today than it was at $4.00 oz. in January 1974. (see: Silver Is Cheap And Getting Cheaper)

CONCLUSION

Many of the analyses about gold and silver are factually incorrect. They are lacking in fundamental support and have no historical precedent.

The logic used is faulty because it is based on incorrect assumptions. All of this leads to unrealistic expectations.

The expectations for a moonshot price trajectory, for either gold or silver, are wishful thinking. And to the extent they occur, they will be accompanied by conditions that negate the expected positive benefits (see: Gold’s Not An Investment – You Won’t Get Rich and Silver Fails Miserably To Meet Expectations)

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!

 

Still Waiting On Silver

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If you are still waiting on silver to bring you huge profits, your wait just got longer. Below is a chart (source) of SLV prices for the past week…

Silver prices gapped significantly lower at the open on both Thursday and Friday. The combined loss for the two days is almost six percent.

It’s true that two days price action doesn’t tell the whole story, but contrary to what usually happens in fairy tales, this story isn’t likely to end in similar fashion. The phrase “happily ever after” does not apply.

Nor can it be said with any conviction that there is a positive side to silver’s recent price action. No matter how optimistic silver investors are, false hopes are still “false”.

Below is a two-year chart of SLV…

While it is not drawn on the chart, there is an uptrend line of support which dates back to March 2020 and which was decisively broken earlier this summer in June. At that time, silver prices gapped down sharply, too; and again in August.

At this point silver prices are down more than 25 percent from their highs last August and appear to be headed lower.  It isn’t unreasonable to expect SLV to land somewhere around $18 and spot silver at $19-19.25 – at least temporarily.

IS SILVER REALLY CHEAP? 

In May 2021, I published an article titled “Are Silver Prices Really Cheap; And Does It Matter?” At the time, spot silver prices were approximately $27 oz.

The February Reddit false alarm was in the rear view mirror,  and the silver price seemed   to be consolidating at about ten percent below its high from last August which was in the vicinity of $30 oz…

“On an inflation-adjusted basis, most of the price history for silver is still under $20 oz. Even on an inflation-adjusted basis, silver is still more expensive than almost any other time in the past one hundred years.” 

Silver back below $20 oz. is like returning home after a fun vacation. Familiar territory, but not much to get excited about.

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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