Is silver going lower for longer or headed higher? Here’s a look at both sides of the debate…
SILVER PRICES OPTIMIST:
DEMAND: Silver demand increases every year and will push prices higher. Our modern world depends upon electronics, computers, missiles, fighter jets, cruise missiles, technology, communication devices and more. Each new application adds to silver demand. Medical applications, electric cars and photovoltaic solar panels need more silver and will boost demand.
DEVALUATION: Silver prices rise because the dollar is devalued by the Federal Reserve and U.S. government deficit spending. Dollars buy less each year so prices for silver, food, candy bars, political payoffs and military hardware (everything but computers and televisions) rise in price.
Dollar devaluation will continue as long as we use unbacked debt based fiat currencies and governments borrow to cover excessive spending.
MINING COSTS: Silver mining requires a large expenditure of energy, often aggravated by difficult conditions and declining ore concentrations. More expensive energy increases the price silver miners need to stay in business.
Energy costs rise, on average, because dollars are devalued and crude oil is more expensive to extract. Yes, crude oil prices spiked in 2008 to almost $150 and then fell below $40 five months later. They rose to over $100 in June 2014 and then fell under $30 in January 2016. Energy prices are volatile (and manipulated) but on average they rise because the dollars used to buy them are worth less.
The Public Will Buy More Silver Because:
- Individuals need to protect their assets and retirements by investing in something real. One excellent choice is silver.
- Individuals realize the financial system is “rigged” to extract wealth from existing currency units – your savings and investments. Silver will help protect those assets from devaluation.
- Printing currency units does NOT create wealth, but it will devalue existing dollars and increase silver prices.
- Ever-increasing debt does NOT create wealth, but it creates financial trauma and higher silver prices.
RATIOS AND GRAPHS:
The St. Louis Federal Reserve publishes data for U.S. total credit market debt. Plot ever-rising debt on a log scale (exponential increases are a straight line) against annual silver prices (smoothed with a five year moving average) on a log scale. Debt increases with no hint it will ever decline. Silver prices move higher along with exponentially increasing debt.
The ratio of silver prices (times one trillion) to total credit market debt shows debt has increased more than silver prices. One should conclude the “powers-that-be” encourage debt and discourage silver.
The ratio shows that silver prices are now low compared to total debt. A spike higher in a financial panic could increase silver prices and the ratio, as it did in 1980, by a factor of ten or more.
The ratio of silver prices (times one trillion) to M3 shows total currency units (debt based dollars) have increased more than silver prices since 1971. The ratio could increase by a factor of 10 in a financial panic when people flee from fiat dollars and frantically exchange them for real silver.
- Rising demand from industrial, military, and medical applications will create higher silver prices.
- Silver mining costs must rise due to increasing energy costs and lower ore concentrations. Review the work of Steve St. Angelo here.
- Governments, central banks, and the financial and political elite create ever-increasing debt. Silver prices will rise because the excessive debt devalues dollars.
- Government and central bank responses to a financial crisis or weakening economy result in more debt, more currency in circulation and a devalued dollar. There is little reason to expect these silly responses will change.
- Ratios to currency in circulation and total debt show that silver prices are low and could rise much higher in a financial panic when financial assets reset lower and real assets reset higher. Tiny example: From October 2008 to April in 2011, silver prices rose from under $9 to nearly $50
Examine the long-term exponential price increases in the above graph!
SILVER PRICES PESSIMIST:
- Silver Bubble Prices: Silver prices didn’t recover from their 1980 bubble for 21 years. Silver prices peaked in 2011. Many have called the price peak a bubble because prices rose in 30 months from $8.53 to nearly $50. Silver prices might be weak for years if you think the 2011 peak was as important as the 1980 bubble high.
- Commodity Prices: Harry Dent, a popular demographer, sees gold dropping to $700 and lower. He claims the commodity price cycle peaked in 2011 and prices will decline for years. Low gold prices suggest lower silver prices. Dent might be right, but I doubt it.
- Price Suppression: Based on fines, court cases, settlements and indictments, central banks, trading firms, JPMorgan and Deutsche Bank have manipulated and suppressed silver prices for decades. The “powers-that-be” don’t want gold or silver prices spiking higher except on their terms and timing.
- Central Banks: Many people believe central banks are powerful enough to control and suppress silver prices forever. This thinking overstates the power and influence of central bankers, but we shall see.
IN MY OPINION:
- Most arguments against increasing long-term silver prices are weak and inaccurate.
- Increasing investor, industrial and military demand for silver will drive prices higher.
- Mining costs are rising. Retail silver prices must rise.
- U.S. official national debt doubles every eight to nine years. The increasing debt adds to total currency in circulation and devalues existing dollars. Silver prices, measured in “worth less” dollars, will rise much higher.