Are Silver Prices Really Cheap; And Does It Matter?

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

silverchartnewarticle

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)

silverchartnewarticle2

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-2021-05-21-macrotrends

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

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.
    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!

Silver Takes Charge with Gold a Reluctant Follower

What is our trading focus?

Spot Gold (Ticker: XAUUSD)
Spot Silver (Ticker: XAGUSD)
Gold/silver ratio (Ticker: XAUXAG


Silver broke out of its triangular formation yesterday to record its best day since February 1 when it briefly spiked above $30. Gold meanwhile got rejected once again as it continues to struggle finding enough momentum to break above the key $1800 level. Overnight both trades softer with the stronger dollar off-setting a ten-week low in U.S. 10-year real yields at –0.83%.

Rising growth expectations together with the prospect for governments supported infrastructure plans as well as the green transformation and reflation focus have all helped drive a strong rally across industrial and platinum group metals in 2021. Silver has been caught between two chairs with the market struggling to work out whether the impact from industrial metals should hold a bigger sway than struggling gold. The latter due to its sensitivity towards movements in rates and the dollar, both of which up until recently had been going higher.

On the back of the recent strong performance across industrial metals, silver ended up taking the lead with yesterday’s trigger being the combination of weaker than expected U.S. ISM Manufacturing and higher ISM Prices Paid. The renewed pull from surging industrial metals can be seen through the gold-silver ratio which has been in a downtrend during the past month. From above 70 ounces of silver to one ounce of gold on April 1 it has since declined to a seven-week low at 66.5.

Comment from Kim Cramer Larsson, our technical analyst:
“Silver rallied almost 4% yesterday and closed above the resistance level around $26.65/oz, thereby confirming the uptrend which started back in early April. RSI is above the 60 threshold which support the bullish sentiment and only a close below $25.7 will demolish this short-term bullish scenario.”

Source: Saxo Group

While the double bottom in gold was confirmed on the recent break above $1765, the lack of follow-through and now multiple rejections below $1800 has left traders somewhat bewildered. The short-term technical outlook however still looks promising above $1765 and a break above $1800 could signal a move towards the $1818 and $1833, an area that undoubtedly would begin to shake out long-held trend following short positions.

 

Source: Saxo Group

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire