Silver

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!

 

Is Silver Really Cheap; And Does It Matter?

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IS SILVER REALLY CHEAP?

Proponents of silver and their expectations for a much higher price have talked for years about the reasons “silver is undervalued” (their words, not mine).

Whether it is a deficit in new production of silver or the gold-to-silver ratio, there is always something to talk about; so let’s talk.

Below is a chart (source) of silver prices for the past century…  

Silver Prices – 100 Year Historical Chart

The chart is plotted using average closing prices for spot silver so the peak shown in 1980 is $36 oz., which is an average of closing prices for the month of February 1980. The peak intraday price was $49 oz. in January 1980.

In either case, with spot silver currently under $28 oz., silver is definitely cheaper than it was in early 1980.

That does not, however, make silver a bargain at its current price. The actual average price for the entire year 1980 was $20.98 oz.  With the average closing price for 2021 at more than $26 oz., then silver is more costly by an average of $5 oz., or twenty-four percent.

The two parallel lines identify a price zone for silver between $20 – $40 oz. The total time that silver prices were actually within that range or higher amounts to less than five years.

Since the chart includes a total of 106 years, that means silver has traded at prices below $20 oz. for more than ninety-five percent of the past century.

Conversely, we might say that silver at $27 oz. is not cheap. In fact, after adding the exorbitant premiums that accompany the purchase of physical silver (Silver Eagles, junk silver coins, etc.), silver is quite expensive; more than almost any other time shown on the chart.

However, a realistic assessment of silver prices is not complete unless we consider inflation-adjusted prices. Here is the same chart as above, but with silver prices adjusted for inflation…

Silver Prices – 100 Year Historical Chart (inflation-adjusted)

In the chart above, the same parallel lines of $20 and $40 are shown. On an inflation-adjusted basis, most of the price history for silver is still under $20 oz.

An imaginary line at $30 oz. compares more closely to the $20 oz. in the first chart and reinforces how significant the recent $30 oz. stopping point is in silver’s price history.

Even on an inflation-adjusted basis, silver is still more expensive than almost any other time in the past one hundred years. After adding premiums for actual physical silver in various forms, the acquisition price approaches $35-40 oz.

Some will argue that expectant price increases for silver will make any of this type of analysis unnecessary, or moot. However, the reasoning behind those expectations are more grounded in fantasy than actual fundamental fact.

SILVER SUPPLY-DEMAND GAP

One of the so-called fundamentals that seem to attract unwarranted attention is the  supply-demand gap in production (mining) of silver relative to consumption.

“The gap in consumption over production that existed in the late sixties and early seventies was one of several things that contributed to much higher silver prices. But when all is said and done, and after decades of ‘fundamental’ arguments about such an imbalance, silver has failed to show any further signs of a need for revaluation in price because of consumption/production gaps, past or current.”  (see No Silver Lining Here)

GOLD-TO-SILVER RATIO 

Another favorite argument trumpeted in silver’s behalf is the reliance on a return to gold-to-silver ratio of 16:1. The ratio currently stands at 67 and was as high as 120 last year. Below is a chart of the ratio…

Gold to Silver Ratio – 100 Year Historical Chart

Silver investors who are depending on a declining gold-to-silver ratio are betting that silver will outperform gold going forward.  But, if anything, the chart (see link above) shows just the opposite. For more than fifty years, the ratio has held stubbornly above a rising trend line taking it to much higher levels.

In the Mint Act of 1792, the U.S. government arbitrarily chose a 16:1 ratio of gold prices to silver prices.  The actual prices were set at $20.67 per ounce for gold and $1.29 per ounce for silver.

“There is no fundamental reason which justifies any particular ratio between gold and silver.” (see Gold-Silver Ratio: Debunking The Myth and Gold-Silver Ratio And Correlation)

SILVER – WHAT NOT TO EXPECT 

  1. Don’t expect silver to outperform gold. Gold is real money and its higher price reflects the actual loss in purchasing power of the US dollar. As long as the dollar continues to lose purchasing power, the price of gold will continue to move higher relative to silver.
  2. Don’t expect silver’s price to rise if stocks collapse.  A collapse in stock prices more likely would usher in hard times economically; maybe recession or depression. Silver is primarily an industrial commodity, so it is very price sensitive to economic slowdowns. When stocks fell at the onset of Covid-inspired closures and shutdowns last year, the price of silver fell by a larger percentage, before moving higher along with most everything else.
  3. Don’t expect silver to rise above $30 oz. and stay there. That would be a refutation of everything we know about silver historically.
  4. Don’t expect a special circumstance or event to void any of the above. 

SILVER – WHAT SHOULD YOU DO? 

What you do depends on your reasons for owning silver.

  1. If you own silver and are expecting large-scale fantasy price increases, reread this article and the other ones referenced.
  2. If you got in early on the latest upswing and have some nice profits, take them.
  3. If you own some silver coins against the possibility of a collapse in the US dollar, keep them and go about your business.
  4. If you have  larger amounts of wealth you want to protect, consider gold. It is a much better choice.

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!

Big Down Day For Gold And Silver; More To Come?

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After a recent spike to the upside over the past seven days, both gold and silver have turned negative again and could be headed back to their recent low points reached early in the day on Monday, November 30th.

The movement in both gold and silver is evident of a decided shift in trend direction to the downside. What happens after prices return to their recent lows could prove interesting; or downright discouraging if you are expecting a resumption of the trend to higher prices.

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Silver Is Trapped Below $30

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Below is a chart (source) showing a 10-year history of silver prices. The prices are adjusted for inflation…

As you can see, the price of silver today is well below its peak price in 2011. At $24 per
ounce, silver is down fifty-six percent since August 2011.

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Gold vs. Silver – Absolutely No Comparison

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GOLD VS. SILVER

In the five months between March and August this year, the price of silver increased from a fourteen-year low of $11.77 per ounce to a seven-year high of $29.26. That is a whopping gain of one hundred sixty-three percent.

Meanwhile, gold’s price rose from its low of $1472 per ounce to a recent high of $2061. That represents a gain of forty percent, which is certainly a handsome number. Nevertheless, silver’s performance outshone gold by a ratio of four-to-one.

However, five months doesn’t tell the whole story. For those who were and are, hopeful that this is just the beginning of silver’s day in the sun, be warned. Looking at the bigger picture historically, silver can’t hold a candle to gold.

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Silver’s Apparent Recovery

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SILVER’S APPARENT RECOVERY

Some might say “Silver’s performance over the past several weeks has been nothing short of phenomenal.” Others talk and act as if all of their wildly crazy price predictions have already come true.

The chart (source) below is a one-year history of daily prices for SLV (Silver ETF)…

As of this writing, SLV is up forty-eight percent since striking its most recent low of $10.86  two months ago. It would not be excessive to call it an impressive rally of magnitude.

There are, however, some items of note that might dampen one’s enthusiasm if you are looking for an infinite extension of the current rally.

The rally has come immediately on the heels of a nearly forty percent decline in silver over the preceding four weeks. As such, it is, at this point, merely a retracement of previously lost ground.

In addition, silver is still more than two dollars per ounce lower than it was when the price price peaked earlier this year. This means that silver needs to increase by another fourteen percent just to get back to its February price point just before it collapsed.

Let’s remember – when silver was at $18+ three months ago, we were being told it was last call to own silver below $20 per ounce; and the silver bullet train was supposed to be fueled by an impending stock market crash.

The stock market crashed; and silver crashed faster and harder. What will happen to silver prices when stocks crash again?

While you are thinking about that, lets look at two more charts (source) The first is a five-year history of physical silver prices…

As you can see, viewing silver’s recent move within the context of a longer-term time frame, alters our perception. The potential for additional volatility in the silver price is evident.  However, the slope of the pattern, along with the overhead line of resistance, seems to indicate that the price of silver is well contained under $20 per ounce.

Finally, viewed within the context of a ten-year time frame, it would appear that silver’s recent rally is just a hiccup in its decade-long price decline since its peak in 2011…

In conclusion, not much has changed; silver’s potential for higher prices is quite limited.

With the winds of deflation howling ominously, it is more likely that the price of silver is headed lower.

As we have said before, it is prudent to own some silver coins (see my article on silver coin premiums) for exchange and barter against the possibility of a breakdown in the financial system and complete repudiation of the US dollar.

Other than that, your best bet for wealth preservation is gold; as long as you are not chasing the price.

(also see: Silver Loses Its Mettle)

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!

 

 

Gold-Silver Ratio And Correlation

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GOLD-SILVER RATIO

From Investopedia:

“Correlation is a statistic that measures the degree to which two variables move in relation to each other. Correlation measures association, but doesn’t show if x causes y or vice versa, or if the association is caused by a third–perhaps unseen–factor.”

In order for correlation to exist, there must be fundamentals that directly connect the two items being compared.

For example, there is a possible correlation between localized, bad weather and crop failures. But how do you predict the timing and extent, or the effects, to a degree that can be profitable?

And there certainly is a correlation between the price of labor and materials vs. the finished cost of building a new home. But there is no correlation between the price of labor and materials vs. the number of new housing starts.

We can find patterns and rhythm that might appear to be correlation (or inverse correlation) by plotting the price differential of any two items but it still does not imply correlation.

So, are gold and silver correlated?

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Silver Coin Premiums – Factual And Farcical

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QUESTION ABOUT SILVER COIN PREMIUMS

Disruptions to normal supply channels happen from time to time for various reasons. Also, people act irrationally at times.

Recently we saw a confluence of both events; and the results are attributable primarily to fear.

The fear was initiated when access to something desired, or needed, was inhibited (i.e., hindered, restrained, or prevented). At that moment, the actions of some individuals were indicative of expectations for the worst they could imagine.

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Silver Charts Say $5 Or Lower Is Coming

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SILVER CHARTS SAY $5

Even the most casual silver investor must be discouraged with what has happened to silver prices recently. But what about those who were/are super bullish? How do they feel?

As I read various reports and articles, I sense some back peddling on the more extreme predictions which were so prevalent just shortly more than a month ago. On the other hand, I also sense a reluctance to let go; to just admit they were wrong and move on.

Experiencing the reality of silver’s price decline of more than one-third in barely three weeks has left its mark in ways that cannot be ignored. It is ignored, though. And when it isn’t ignored, it is excused; or explained in terms that are supposed to make you feel better, but somehow make you feel worse.

Rather than rehash all of the depressing details verbally, I thought it might be a good idea to look at some silver charts which give us pictures of the damage that has been inflicted on a technical basis.

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Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10

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GOLD-SILVER RATIO TOPS 100 

Recently, the gold-silver ratio topped 100. Nevertheless, it doesn’t seem to matter what the ratio is, or how high it goes. Those who prefer silver always seem to think it’s going to reverse “soon”.

It might; maybe significantly so, too. But it doesn’t mean a thing. There are no fundamental reasons for the ratio to move up or down at any given time.

Actually, there is no reason to track it, either. Except that those who love silver think it is correlated in some way with gold; its not. And that silver is cheap relative to gold (it is), so it must be a better buy (its not).

But what if there was a correlation; or inverse correlation? Shouldn’t we see something on a chart that would indicate such?

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