E Silver Fails Miserably To Meet Expectations

In order for silver to match gold's price gains over the past forty-five years, it would need to be $72.00 per ounce today - not $14.41.

Since their simultaneous price peaks in January 1980, gold is fifty-eight percent higher and silver is sixty-six percent lower.

The US dollar has lost more than ninety-eight percent of its purchasing power since 1913. In other words, it takes more than fifty times as many paper dollars today to purchase comparable amounts of similar goods and services you could have purchased in 1913.  The sixty-fold increase ($1237.00 divided by $20.67) in gold's U.S. dollar price compensates quite well for the decline in U.S. dollar purchasing power.  The eleven-fold increase $14.41 divided by $1.29) in silver's U.S. dollar price clearly does not.

Silver's use as money is well-documented historically. I get that. But it is still primarily an industrial commodity. And neither of these uses (single or combined) makes silver special enough to warrant the exaggerated claims of those who expect to alter the patterns of history.

The much talked about gap in consumption over production, the gold-to-silver ratio, JP Morgan Chase's accumulation of silver bullion - none of these things merit the attention they receive insofar as they pertain to "fundamentals" for silver.

They are misunderstood and over-emphasized as justification for price projections of dubious nature.

Clearly, though, the biggest risk factor regarding analysis for silver and projections for its price is unrealistic expectations. Those expectations have their roots in the price activity generated between 1971-80.

There are two primary reasons for silver's price surge in the 1970s:

  1. Silver mining production lagged consumption for nearly two full decades during the 1950s and 60s. During that period, the U.S. Treasury sold silver regularly from its hoard of nearly two billion ounces. This action kept the market price for silver suppressed. By 1970 nearly all of the silver was gone and the Treasury had to stop its sales. Thus, the price of silver was freed to find a presumably higher level that would eventually balance consumption and production.

  2. The United States suspended all convertibility of the U.S. dollar into gold in 1971. Those who were prescient enough to recognize the ongoing threat of further U.S. dollar depreciation, purchased gold and silver based on their historic roles as money.

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Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN'T, AND WHO'S RESPONSIBLE FOR IT and  more

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