Silver Continues To Fascinate – But Why?

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 blow-off 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.

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