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Is Silver Fairly Priced at $16?

Silver at $16.00 is Fairly Priced … IF …

Silver currently sells around $16.  I think that price would be sensible if the Dow was priced about 10,000 and the U.S. national debt was “only” $10 trillion.

 silver

The Dow is hitting all-time highs at about 21,500 and the official national debt – not counting unfunded liabilities – is about $20 trillion.  Silver prices are too low compared to debt and the Dow.

Given the massive national debt, the Dow and NASDAQ exuberance, and 100 years of experience, silver could easily be double or triple its current price.

We know that politicians will borrow and spend, national debt will increase, and the powers-that-be have levitated the stock market.  A market crash may reduce the Dow 20 – 50% but, based on a century of dollar devaluations, the Dow will rise again as the Federal Reserve and Wall Street support the stock markets.

Silver prices are erratic and difficult to predict.  People stood in line for hours to buy physical silver in January 1980 at (then) unheard of prices – $40 and up.  That bubble price equivalent for silver in today’s dollars is $150.00 – $200 (official CPI), but over $500 using Shadowstats data.  We will see $150 silver again, perhaps in a few years, perhaps in the next decade.

WHY?

Examine over a century of official national debt data graphed on a log scale.  Official debt in 1913 was $3 billion.  Since then it has risen 8% to 9% every year to reach $20 trillion or $20,000 billion.  Debt will continue rising as long as politicians spend, bankers lend, and the financial system benefits itself by pumping dollars and debt into the economy.

As a thought experiment, name the Senators, Representatives, Presidents, military contractors, pharmaceutical companies, and Medicare recipients who wish to see the government reduce expenses.  Difficult isn’t it?  And that explains why debt will increase.

us debt silver

Silver prices have increased, but more slowly than national debt, as dollars have been devalued for over a century.

long term silver price chart

For the past 30 years most consumer prices and stock indices have risen exponentially.  There are many reasons why exponential increases will continue and few reasons for those long-term trends to reverse.

djia chart

The Dow (DJIA) has increased, on average, about 8% per year for 30 years.

silver price forecast

Silver prices, after the 1980 bubble and crash, have increased erratically since their low in 1993 at $3.51.  The exponential trend line, as drawn, indicates that silver prices in mid-2017 are well below their long-term trend.  Silver prices exceeded $48 in April 2011 before crashing back to $13.60 in late 2015.

Silver prices are, in the big picture, too low and due to rise back to and above their exponential trend.

CONSIDER RATIOS:

Multiply average annual silver prices by one trillion and divide by the national debt.  For the past 30 years the ratio has ranged between 0.7 and 2.9.  The ratio is currently very low at about 0.8.  We know debt is ever-increasing. Someday silver prices will rally substantially and force the ratio higher toward 3 and probably higher.  For perspective the ratio, using average annual silver prices, reached 26 in 1980, and surpassed 50 using the daily prices for silver.

silver debt ratio

The silver price times 1,000 to Dow ratio for the past 30 years is similar.  The ratio is low and likely to rise much higher from about 0.75.

silver price dow ratio

The silver (multiplied by 100) to gold ratio is a good indicator of silver lows and highs.  When the ratio is low, both silver and gold prices are low, because silver prices fall faster and farther than gold prices.  Silver rallies are larger and more intense than gold rallies, and those rallies increase the silver to gold ratio.  The ratio is currently low, which tells us that silver prices are too low and due to rise.

The gold to silver ratio is the inverse.  When the ratio is high, prices for both metals are too low.  The ratio is currently very high at 75 to one, which indicates gold and particularly silver prices are too low.

gold silver ratio

SUMMARY:

  • Politicians spend and bankers lend. Debt increases, total dollars in circulation increase and dollars purchase less.  Prices for stocks, commodities, food, energy, gold, silver, beer and many others rise.
  • Silver prices are down from their 2011 high by about 70%. The Dow and national debt have reached all-time highs.  Those new highs benefit the financial elite.
  • Silver prices have risen erratically but inevitably, along with debt and the Dow, for decades. As of July 2017 silver prices, compared to the national debt and the Dow, are too low and will rise. 
  • Similar comparisons, not shown, between silver and prices for houses, beer, college tuition, medical expenses, health insurance, pension underfunding, Wall Street bonuses, payoffs to politicians, and new trucks would show similar ratios. Almost all prices rise exponentially and silver prices are comparatively low.

depression prices

Depression era prices before massive dollar devaluations.

 cost of living 1970

WHEN WILL SILVER PRICES RISE?

  • Tough question! Believable answers are difficult to find.
  • Bull markets “buck off” most investors so few people ride the bull market to completion.
  • Bear markets suck investors into falling markets so most investors are mauled.
  • Markets “regress to the mean.” High flying bull markets eventually roll-over and fall below their long term trends.  Devastating bear markets eventually reach a bottom and begin a new bull market, usually with few participants.
  • Based on the analysis above, stocks are due to correct and silver is ready to rally. The next rally in silver might be tremendous based on the prospects for expanded war, financial chaos, and central bank “printing” that will devalue all currencies.

CYCLES:

Consider this long term chart of silver cycles.  We don’t know if seven year low-to-low cycles will persist. But they indicate a deep silver price low in late 2015 and rally potential into the next decade.  Given the likelihood of financial crashes, war, and central bank “printing” there is good reason to expect a strong silver rally. Further, this seven year bull cycle is young and another low is not due until late 2022 or 2023.

silver price technical

Silver will sell for $100 per ounce!  Impossible?  Look at price increases for Amazon ($6 to $1,000 in 16 years) stock, Bitcoin, and many others.  Yes, $100 silver (and higher) seems likely within a few years.

Tom Cloud of Cloud Hard Assets and National Numismatic Associates has issued a buy signal on silver.  This is his first buy signal in almost nine years.  Pay attention!  As silver and gold rise, the associated mining stocks will rally farther and faster.

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Article written for Gold Stock Bull by Gary Christenson of The Deviant Investor

By | 2017-07-06T15:02:55+00:00 July 6th, 2017|Gold & Silver Commentary|

About the Author:

Gary Christenson is the owner and writer for the popular and contrarian investment site Deviant Investor and the author of several books, including “Fort Knox Down!” and “Gold Value and Gold Prices 1971 – 2021.” He is a retired accountant and business manager with 30 years of experience studying markets, investing, and trading. He writes about investing, gold, silver, the economy, and central banking.

Many years ago he did graduate work in physics (all but dissertation), so he strongly believes in analysis, objective facts, and rational decisions based on hard data.