Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Silver and the Yield Curve Inversion - 23rd Sep 19
Comparing Gold Producers to Main Stream Stocks - 23rd Sep 19
The Incredible World of Gold Stock Chartology - 23rd Sep 19
The Hottest Sports Stock Of 2020 - 23rd Sep 19
Stocks Wedge At The Edge – Front And Center - 23rd Sep 19
Stock Market Top Almost Confirmed - 23rd Sep 19
Thomas Cook COLLAPSE! 300,000 Passengers Stranded, Flights Cancelled, Planes Grounded - 23rd Sep 19
Massive Stock Market Price Reversion May Be Days or Weeks Away - 22nd Sep 19
How Russia Seized Control of the Uranium Market - 22nd Sep 19
Dow Stock Market Trend Forecast Update - 21st Sep 19
Is Stock Market Price Revaluation Event About To Happen? - 21st Sep 19
Gold Leads, Will the Rest Follow? - 21st Sep 19
Are Cowboys Really Dreaming of... Electric Trucks? - 21st Sep 19
Gold among Negative-Yielding Bonds - 20th Sep 19
Panicky Fed Flooding Overnight Markets with Cash - 20th Sep 19
Uber Stock Price Will Crash on November 6 - 20th Sep 19
Semiconductor Stocks Sector Market & Economic Leader - 20th Sep 19
Learning Artificial Intelligence - What is a Neural Network? - 20th Sep 19
Precious Metals Setting Up Another Momentum Base/Bottom - 20th Sep 19
Small Marketing Budget? No Problem! - 20th Sep 19
The Many Forex Trading Opportunities the Fed Day Has Dealt Us - 19th Sep 19
Fed Cuts Interest Rates and Gold Drops. Again - 19th Sep 19
Silver Still Cheap Relative to Gold, Trend Forecast Update Video - 19th Sep 19
Baby Boomers Are the Worst Investors in the World - 19th Sep 19
Your $1,229 FREE Tticket to Elliott Market Analysis & Trading Set-ups - 19th Sep 19
Is The Stock Market Other Shoe About To Drop With Fed News? - 19th Sep 19
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19

Market Oracle FREE Newsletter

How to Invest in the Esports Revolution

No Silver Lining Here

Commodities / Gold and Silver 2018 Feb 20, 2018 - 10:43 AM GMT

By: Kelsey_Williams

Commodities

As bad as the prognosticators can be with their predictions for the price of gold, the situation for silver is even worse.

Some very recent headlines trumpeted the following proclamations:

“Silver prices to surge…”

“Silver…Why Prices Will Soar”

“Why You Must Own Silver…”


But my favorite headline expresses all of the emotion and confusion regarding silver quite aptly: “What Is Wrong With Silver?”

Maybe it would be better to ask “What Is RightWith Silver?” Exactly what is it that makes silver so special in the eyes of so many investors and advisers?

There are, of course, several things that others point to in their efforts to support their claims for much higher silver prices.

One is the accumulation of large amounts of physical silver by JP Morgan Chase Bank. But that should not necessarily indicate that the sky is the limit for silver prices.

It is inferred that JP Morgan’s accumulation of silver is bullish for silver prices; and favorable comparisons have been drawn between the bank’s activities regarding silver and the Hunt brothers accumulation efforts in the late 1970s.

But the Hunt brothers efforts did not turn out well. Even though silver prices soared (and definitely not just because of the Hunts’ buying, either) they came back down swiftly.  In four months, from January 18, 1980 to May 22, 1980, the price of silver fell from $49.45 per ounce to $10.89 per ounce.

The decline didn’t end there, either. Twelve years later, in December 1992, silver traded as low as $3.67 per ounce.

It is worth pointing out that there were multiple factors in play at the time silver rose from $1.33 per ounce in November 1971 to its eventual high of $49.45 in January 1980. Speculation surrounding the Hunt family’s accumulation of silver only added fuel to the fire. And likely exacerbated things to the point that silver far exceeded any realistic price level that could be justified at the time. Hence, its price decline was considerably more severe than gold’s.

And just what are JP Morgan Chase Bank’s intentions regarding the hoard of silver they have accumulated? Corner the market? Drive the silver price much higher? Then sell with huge profits?

A big problem comes after the accumulation. When and how do you sell what you own in order to take those huge profits – without dumping excess supply on the market? Ask the Hunts. They had trouble liquidating at any price; even without ‘huge profits’.

But what if JP Morgan’s intentions are entirely different? What if their plan is to suppress the market price for silver?  Not everyone wants higher silver prices.

The preceding paragraph may conjure up fantasies about conspiracies and price manipulation, or appear to add support to existing arguments about such. Don’t get carried away. It’s only meant to raise questions that aren’t usually asked by those who see anything and everything as a fundamental reason for their bullish price expectations.

Another favorable factor cited is silver’s apparent correlation with gold. Bullish expectations for gold’s price often lead to even more wildly bullish expectations for silver. And those expectations usually find a launch pad named the gold-to-silver ratio.

In the Mint Act of 1792, the U.S. government arbitrarily chose a 16 to 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.

It might be reasonable to expect a ratio for purposes of consistency and uniformity within the existing monetary system. However, the price used and maintained for silver at $1.29 per ounce was considerably in excess of the current (then) market price.

In 1859, prospectors discovered the Comstock Lode in Virginia City, Nevada.  It was the largest silver vein in the world. And the incredible amount of new silver supply ushered in a long period of woefully low market prices for silver compared to the official price of $1.29 per ounce.

For nearly seventy years the government bought all excess silver offered at the official  price of $1.29  per ounce but silver’s actual market price dropped as low as $.25 per ounce in 1932.

As industrial use of silver increased during and after World War II and into the 1960s, the government reversed their position and became a willing seller of silver in order to keep the price from rising. Since they had accumulated a hoard of nearly two billion ounces of silver over the preceding seventy years, they were well positioned to do so.

As the price for silver approached once again the official price of $1.29 per ounce and threatened to exceed it, the government was faced with a cost for silver that exceeded the face value of coins in circulation. And it would cost more to mint new coins than they were actually worth. This was a principal factor in the U.S. government’s  decision to stop issuing coins with ninety percent silver content after 1964.

The United States used silver as the primary metal in the content of its coinage for more than one hundred seventy years. And they did their best to maintain the official  gold-to-silver ratio of 16 to 1 and the official price of $1.29 per ounce for silver during that period.

But silver’s history during the entire period is marked by price support and price suppression. There is nothing of substance to support a 16 to 1 ratio for gold-to-silver.

Below is a chart of the gold-to-silver ratio over the past one hundred years.  It shows no patterns which support arguments for a return to 16 to 1. Or any other ratio for that matter.

Gold to Silver Ratio – 100 Year Historical Chart

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 the past fifty years, the ratio has held above a rising trend line taking it to much higher levels.

Arguments about a 16 to 1 gold-to-silver ratio aside, there is still an implied connection between the two metals. The supposed connection has some merits.

Both gold and silver have a long history of use as money; independently and concurrently. Some examples are the ancient Greeks (silver Drachma); Romans (gold as primary monetary unit and silver coins); British Empire (pound sterling – silver); and the Unites States (both gold and silver).

However, any connection between the two is limited. Simply defined:

Gold is real money (nothing else is). It is a medium of exchange, measure of value, and a store of value.

Silver is primarily an industrial commodity. Its use as money is secondary. And it is not a store of value.

After President Nixon severed any remaining links between gold and the U.S. dollar in 1971, both gold and silver could seek out their respective price levels on a market-oriented basis.

It was an opportunity for both to prove their ‘mettle’. And they did not disappoint. At least initially.

Culminating with their blow off tops in 1980, the gold-to-silver ratio returned to its vaunted 16 to 1 mark. But it even more quickly returned to higher levels and by 1993 was at its all-time high of 100 to 1.

On an absolute basis silver has failed to hold its own as ‘money’ by losing value over the past  fifty years. You can see this on the chart below.

Silver Prices – 100 Year Historical Chart

Since their simultaneous price peaks in January 1980, gold is fifty-eight percent higher and silver is sixty-six percent lower. In order for silver to reflect similar price action relative to gold as it pertains to the decline in value of the U.S. dollar, silver would need to be currently at $77.00 per ounce. It is obviously nowhere near that and didn’t get close to it even when it briefly approached $50.00 per ounce seven years ago.

Some will argue that this is why silver is due for an explosion upwards in price; and that it is temporarily and wrongly undervalued relative to gold.

Unfortunately, for silver bulls, the past two hundred fifty years of history gives no indication of support for this argument.

Advocates of silver love to point out a supply/demand imbalance, too. But that has always been a part of silver’s history, and sometimes inversely so; such as the seventy-year period after the Comstock Lode discovery, when the world was awash in silver.

The gap in consumption over production existing 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.

It is quite possible that silver could stage another one of its price explosions. But if it does, it will be short-lived. And the subsequent price implosion would be as bad or worse as anything experienced previously.

Historically so, short-term or long-term, the case for higher silver prices is weak; and getting weaker.

By Kelsey Williams

http://www.kelseywilliamsgold.com

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2018 Copyright Kelsey Williams - 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