Silver – Dead In The Water for 40 Years

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.

Coupled with the price prediction of $500 for silver is a prediction for a crash in the U.S. dollar – by 2023.

SILVER THEORY VS. REALITY

I don’t know whether or not the U.S. dollar will crash by next year; or how long it might take for that event to materialize. I also wonder to what extent  any “crash in the  the U.S dollar” will show up in actual purchasing power loss for the dollar. Knowing both of those things would go a long way towards telling us something/anything about the reliability of a $500 price projection for silver.

With that in mind, let’s outline a possible scenario. Regardless of trigger events, let’s assume that the U.S. dollar does indeed crash within the next twelve months. And, let’s also assume that this means that the U.S. dollar would lose all credibility.

In other words, the U.S. dollar would be worthless. If that were the case, then what difference would it make if silver were $500 oz.? It wouldn’t make any difference what the price of silver is in dollars. Who would sell their silver for five hundred dollars or any number of dollars that are considered worthless and that no one else will accept in trade or exchange?

The value of silver for those who use it as money will be in what an ounce of silver can buy. Hopefully, silver would maintain its purchasing power under those conditions. What that means and what you could reasonably expect, is that an ounce of silver would (hopefully) allow you to buy the same amount of goods and services as you can buy today.

The reality, though, is that silver has a long history of failing to meet expectations. Historically, silver has not kept pace with inflation and is a considerably poorer alternative to gold.

SILVER FACTS AND FIGURES 

When silver peaked intraday at $49 oz. in January 1980, the effects of inflation were much worse than what we have experienced recently; and they had been getting worse for quite some time before that. A few months later, silver traded as low as $10 oz. – a decline of nearly eighty percent. It closed the year at $15 oz.

The monthly average closing price for silver in 1980 was $20 oz. The current price of silver is – would you believe? – $20 oz. Forty-two years later, silver is the same price now as it was then – dead in the water.

After allowing for the effects of inflation, silver would need to be at least seventy dollars and ounce right now to match $20 oz. in 1980. The news is worse compared to January 1980’s peak prices.

The monthly average closing price for silver in January 1980 was $36 oz. To match that number, silver would need to be $136 oz. right now.

SILVER COMPARED TO GOLD

Applying the same calculations to gold since 1980, we find that a current gold price $1725 oz. is almost three times (2.8) higher than its average closing price of $615 in 1980. That is a cumulative gain of one hundred eighty percent compared to zero for silver.

The higher price of gold reflects what silver does not; namely, the loss in purchasing of the U.S. dollar.  Expecting silver to do likewise is not supported by fundamentals (see Gold And Silver – Fundamentals Be Damned) or history.

CONCLUSION

It’s a great idea to own some silver coins against the possibility of a collapse in the U.S. dollar as a medium of exchange; but don’t expect to get rich. Other than that, there is no need to accumulate or invest in large amounts of silver.

If you are tempted to invest with the expectations of profiting from an investment in silver, please re-read this article and the articles referenced therein. If you already own silver and have similar expectations, look at the recent rally as an opportunity to sell your holdings.

(also see Inflation Is Killing Silver)

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!

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