Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21
Investing in Google Deep Mind AI 2021 (Alphabet) - 6th Apr 21
Which ETFs Will Benefit As A Stronger US Dollar Reacts To Global Market Concerns - 6th Apr 21
Staying Out of the Red: Financial Tips for Kent Homeowners - 6th Apr 21
Stock Market Pushing Higher - 6th Apr 21
Inflation Fears Rise on Biden’s $3.9 TRILLION in Deficit Spending - 6th Apr 21
Editing and Rendering Videos Whilst Background Crypto Mining Bitcoins with NiceHash, Davinci Resolve - 5th Apr 21
Why the Financial Gurus Are WRONG About Gold - 5th Apr 21
Will Biden’s Infrastructure Plan Rebuild Gold? - 5th Apr 21
Stocks All Time Highs and Gold Double Bottom - 5th Apr 21
All Tech Stocks Revolve Around This Disruptor - 5th Apr 21
Silver $100 Price Ahead - 4th Apr 21
Is Astra Zeneca Vaccine Safe? Risk of Blood Clots and What Side Effects During 8 Days After Jab - 4th Apr 21
Are Premium Bonds A Good Investment in 2021 vs Savings, AI Stocks and Housing Alternatives - 4th Apr 21
Penny Stocks Hit $2 Trillion - The Real Story Behind This "Road to Riches" Scheme - 4th Apr 21
Should Stock Markets Fear Inflation or Deflation? - 4th Apr 21
Dow Stock Market Trend Forecast 2021 - 3rd Apr 21
Gold Price Just Can’t Seem to Breakout - 3rd Apr 21
Stocks, Gold and the Troubling Yields - 3rd Apr 21
What can you buy with cryptocurrencies?- 3rd Apr 21
What a Long and Not so Strange Trip it’s Been for the Gold Mining Stocks - 2nd Apr 21
WD My Book DUO 28tb Unboxing - What Drives Inside the Enclosure, Reds or Blues Review - 2nd Apr 21
Markets, Mayhem and Elliott Waves - 2nd Apr 21
Gold And US Dollar Hegemony - 2nd Apr 21
What Biden’s Big Infrastructure Push Means for Silver Price - 2nd Apr 21
Stock Market Support Near $14,358 On Transportation Index Suggests Rally Will Continue - 2nd Apr 21
Crypto Mine Bitcoin With Your Gaming PC - How Much Profit after 3 Weeks with NiceHash, RTX 3080 GPU - 2nd Apr 21
UK Lockdowns Ending As Europe Continues to Die, Sweet Child O' Mine 2021 Post Pandemic Hope - 2nd Apr 21
A Climbing USDX Means Gold Investors Should Care - 1st Apr 21
How To Spot Market Boom and Bust Cycles - 1st Apr 21
What Could Slay the Stock & Gold Bulls - 1st Apr 21
Precious Metals Mining Stocks Setting Up For A Breakout Rally – Wait For Confirmation - 1st Apr 21
Fed: “We’re Not Going to Take This Punchbowl Away” - 1st Apr 21
Mining Bitcoin On My Desktop PC For 3 Weeks - How Much Crypto Profit Using RTX 3080 on NiceHash - 31st Mar 21
INFLATION - Wage Slaves vs Gold Owners - 31st Mar 21
Why It‘s Reasonable to Be Bullish Stocks and Gold - 31st Mar 21
How To Be Eligible For An E-Transfer Payday Loan? - 31st Mar 21
eXcentral Review – Trade CFDs with a Customer-Centric Broker - 31st Mar 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Silver Statistical Correlations

Commodities / Gold and Silver 2013 Apr 01, 2013 - 06:35 PM GMT

By: DeviantInvestor

Commodities

Begin the analysis in 1971 when Nixon dropped the link between the dollar and gold. A pack of Marlboros cost (depending on local taxes) about $0.39. We paid about $0.36 for a gallon of gasoline. The DOW Index was about 850. Silver was priced at about $1.39.


Times have changed! Read Part 1 of Silver - Keep It Simple!

Today we have more currency in circulation, far more debt, and much higher prices - what does it mean?

Examine Graph 1. The prices for retail cigarettes, crude oil, national debt, silver, and the true money supply (TMS) (see notes at end) are shown on a log scale graph with all prices normalized to start at 1.0 in 1971.

  • National debt (green line) has increased rapidly since 1971 and even more rapidly, on average, than the other items. (National debt has increased over 12% per year for the last five years.)

  • Silver (black line) and crude oil (red line) prices have been erratic with peaks in the early 1980s, troughs in the late 1990s, and substantial rises since 2001.

  • Cigarettes and TMS have increased steadily since 1971.

  • TMS (also M2, M3, etc.), debt, and most commodity prices have increased exponentially since 1971. Because the dollar was not backed by gold, dollar creation, total debt, and prices increased rapidly.

  • Not shown are some prices that increased more rapidly (medical costs and college tuition) and some that increased more slowly (postage and bread).

Graph 2 shows annual silver and crude prices smoothed with a centered five period moving average. This removes much of the "noise" in the price data and shows longer term trends better. Note that the price of silver actually reached about $50 per ounce in early 1980, but the average daily price in 1980 was only $16.39; the smoothed daily average was about $11.

Statistical Correlations

  • Silver prices in dollars (annual average of daily price) correlated with crude prices in dollars (annual average of daily price) at 0.83 - a good correlation. Both are commodities, both are affected by politics, and both are sensitive to money supply, actual inflation, and inflationary expectations.

  • TMS correlated with national debt at 0.99 - a tight correlation. When budget deficits increase the national debt, the money supply expands accordingly.

  • Silver prices (annual average shown) correlated with national debt at 0.67 and with TMS at 0.58. The smoothed silver price correlation to national debt was 0.76 over 40 years and much higher over the past 13 years.

  • Silver prices (smoothed) correlated with crude prices (smoothed) at 0.93 - an excellent correlation.

So What?

  • National debt correlates tightly with TMS. Smoothed silver prices correlate well with both national debt and TMS. We may be apprehensive about future silver prices, but we can be 99.99% certain about the inevitable increase in national debt. Based on the 40 year correlation between silver and national debt, silver prices will continue to rise.

  • Both crude oil and silver are commodities that experience large price volatility. On average, they go up and down together; and, over a 40 year history, their prices have clearly moved substantially higher. I see many reasons to expect both to move higher in the long term.

  • Crude oil is the most important commodity in the world. Its per capita use, on average, is rising and the world's population is increasing, so demand will remain strong, unless the world suffers a massive financial and economic collapse. Further, the easily available oil has been taken so there is little chance that inexpensive supply will increase. More demand coupled with flat or declining supply requires higher future prices. Higher crude oil prices strongly suggest higher silver prices.

  • Central banks are "printing money" in their desperate attempt to fight deflation, levitate asset prices, bailout banks and countries, and encourage inflation. This guarantees further increases in national debt and TMS and price increases for most commodities including crude oil, cigarettes, and silver.

Price of Silver as a Projection Based on Other Variables

We can construct a calculated price for silver based on three variables - national debt, TMS, and the price of crude oil. Examine Graph 3 of smoothed silver prices and the calculated price of silver based on those three variables. Note that the correlation is 0.86 - quite good. The silver price has both a monetary component (national debt and TMS) and a commodity component (crude oil). Together they produce a simple but effective projection for the smoothed average price of silver over the past 42 years.

For the Future

Assume national debt increases 12% per year for the next five years like it has for the past five years. Assume TMS and crude continue their past five year growth rates (11% and 8%). The estimated price for the smoothed average price of silver is about $55 in 2016. The peak price on a spike higher could easily be triple the smoothed price. Look for $100 silver in 2015 - 2017 unless a deflationary collapse occurs - to the detriment of everyone including banks, politicians, and national governments.

Conclusion

Debt, money supply, and the prices for most commodities have exponentially increased over the past 42 years. Prices for crude oil and silver have substantially increased but inconsistently. I can be certain of death and taxes, and I feel confident that the national debt and prices for crude oil, cigarettes, silver, and most other consumer items will drastically increase in the next few years - under circumstances similar to the past 40 years. A hyperinflationary increase is also possible, in which case, all commodity prices will be unbelievably higher. Assuming no deflationary collapse, expect $100 silver relatively soon - perhaps in 2016. Read Past & Future Speculative Bubbles - What They Indicate for Gold and Silver!

Notes on the Data

  • Cigarette data found at the Center for Disease Control. The 1971 average retail price for a pack of cigarettes, including various taxes, was quoted at $0.39. (I remember paying $0.25 for a pack of Marlboros in the late 1960s.)

  • Crude oil data found at InflationData.com. The 1971 price for a barrel of crude was $3.60.

  • Silver data was found at Kitco. They list the average of approximately 260 daily prices in each year. I used this annual average. Note that the spike high price in 1980 exceeded $50, but the annual average price was only $16.39.

  • National debt data found at TreasuryDirect.

  • True money supply (TMS) data was found at Ludwig von Mises Institute.

  • Gasoline prices from U.S. Department of Energy. The average retail price for gasoline in 1971 was $0.36.

GE Christenson
aka Deviant Investor

If you would like to be updated on new blog posts, please subscribe to my RSS Feed or e-mail

© 2013 Copyright Deviant Investor - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules