Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

‘Implosive’ Silver Vulnerable To Big Price Drop

Commodities / Gold and Silver 2017 Nov 28, 2017 - 05:37 AM GMT

By: Kelsey_Williams

Commodities

Admittedly, it must sound encouraging, and even exciting, to hear proclamations that a “silver” lining is now apparent in the metals complex. Or that a silver “blast-off (is) about to happen”.

Expectations abound for the long-expected, vertical leap in silver prices that never seems to come. And we are told it is supported by solid fundamentals that include supply deficits, a return to the 16 to 1 gold/silver ratio, increasing monetary demand for silver, etc.However, an examination of those fundamentals reveals a different picture. And that picture is inconsistent with the call for higher prices.


The supply deficits (gaps in consumption over production) have been talked about for decades.  In the sixties and early seventies they were the principal fundamental in the case for higher silver prices.

Throughout the twentieth century, industrial use of silver increased to the point where the consumption of silver eventually exceeded new production. This is the start of the consumption/production gap to which people refer quite frequently.  The government  became a willing seller in order to keep the price down.  The specific purpose was to keep the price from rising above $1.29 per ounce. This is the level at which the amount of silver in a silver dollar is worth exactly $1.00.

The huge price gains for silver that occurred in the 1970s were largely attributable to years of price suppression prior to that.

Price suppression is not an issue now; and hasn’t been for nearly fifty years. The primary imbalance in supply and demand was corrected in the early seventies. If it hadn’t been, the silver price would already be a lot higher than it is.

The 16 to 1 gold/silver ratio is a myth. The gold-to-silver ratio that existed one hundred fifty years ago was mostly the result of political influence and appeasement. It was an arbitrary number.

There is no fundamental reason which justifies any particular ratio between gold and silver.

Silver is an industrial commodity.  Its primary demand is driven by – and its price is determined by – industrial consumption. Any role as a monetary hedge is secondary.  This is true even in light of the significant increase in the amount of silver used in minting bullion bars and coins.

The fundamentals simply do not support the bullish expectations for silver. And, there are fundamentals that make silver vulnerable to a big price drop.

Deflation is a more likely near-term possibility than extreme inflation.  True deflation results in a decrease in the general price level of goods and services.

As an industrial commodity, silver prices would reflect the full brunt of deflation’s effects. In recent modern history, the lowest recorded prices ($.28 per ounce in November 1932) for silver occurred during the Depression of the 1930s.

Any value from its monetary attributes would afford little or no cushion during deflation.

Another possibility is that we might continue for several more years with relative prosperity and disinflation. This would not stop further price declines for silver.

After it peaked at $48.00 per ounce in 1980, silver’s price declined ninety-two percent over the next thirteen years. It reached a low of $3.57 per ounce during the boom years (February 1993) of the nineties.

It has only been five years since silver last peaked at close to $50.00 per ounce again. How low might it go in the next five years? Maybe not under $4.00 per ounce but $8.00 per ounce is plausible.

Historically, silver is a bust. All of the reasons people give for support of dramatically higher silver prices lose any credibility when one looks at the facts.

For one, silver is ineffective as a monetary hedge. It is not real money (gold is real money) because it is not a store of value. Silver would need to be over $60.00 per ounce right now to approximate comparably what gold’s price reflects regarding the decline of the U.S. dollar.

It is not even close to that. And, ironically, if we use the 16 to 1 ratio that so many think is valid, gold’s price today would be $272.00 ($17.00 per ounce times 16) per ounce. I’m sure no proponent of the 16 to 1 ratio has applied it in such manner.

In addition, on the few occasions when silver has increased in price dramatically, it has been unable to retain any of the increase. I suspect that we are in the midst of something similar now.

In other words, there is likely more downside ahead for silver’s price.

And it could be quite significant.

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.

© 2017 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