Given how low current silver valuations are, this is a great week for a Metals & Markets show that takes a forward look at potential…
Silver and gold had down weeks in price action.
The gold-silver ratio stands just over 88 ounces of silver for 1 ounce of gold… a more than 25-year high for this important valuation metric.
Given how low current silver valuations are at the moment. I believe this is a great week to take a forward look at potential value and crowd metrics which might help us in the future decide when if ever possibly sell some silver bullion and that we have been acquiring up to today.
Before we begin, a brief message and bullion offer from the Royal Mint and our show’s sponsor, SD Bullion.
Welcome to this week’s Metals & Markets, I am your host James Anderson of SD Bullion.
We have a few new guests lined up for coming shows in the weeks ahead, but for this week, I want to take a forward look at some ideas and tools we can use to ponder when is a good time to sell silver.
Some of the tools we will cover can also be used in other broad-ranging asset classes, but for this week we will focus in on silver’s future price potential.
I will begin with a few caveats and assumptions.
I presume that some of us are older and possibly plan on never selling any silver, instead perhaps intending to give their silver to their heirs.
The majority of listeners, though, I assume you are buying and saving silver bullion as a prudent percentage of their long term savings.
As the future fiat currency price for silver climbs, many may look to sell some silver bullion to use the proceeds to buy perhaps other asset classes they deem worthwhile at the time.
For years now on this podcast, we have been operating under the presumption that we currently live under silver price discovery markets that are artificially subjugated and depressed for the most part by derivatives and futures contracts. In a little bit, I will show when that was not so, but allow me to digress.
In artificially low priced commodities markets, when a commodity’s price gets valued too little, eventually real world shortages will develop. High demand with lacking supply requires a higher price be bid to induce more of that commodity to come to market.
Here I will be laying out a case for what potentially may happen to silver when this derivative-driven silver price depression phenomenon wears off and wanes away. When will new masses of marginal silver buyers begin redeploying capital into this comparably small market cap versus other asset classes which dwarf the size of the silver market?
Easy to look at the present situation and mistakingly extrapolate it as if things will remain as they are now. But less than one decade ago, silver price performance proved many doubters incorrect. We will operate here presuming silver will do this again, likely in the decade to come.
The difficult question we will tackle is when to know silver is reaching fair value or perhaps overvaluation. Here we will cover some tools we can use to determine these questions ahead.
Not only silver, but virtually all commodities have been trudging along at some of their cheapest historic valuations versus stocks or equity valuations, bond prices, and fiat currency monetary supplies outstanding.
We will operate under the assumption that this chart will not merely revert to it’s mean but most likely overshoot to the upside in the years to come.
The chart we are looking at measures the value of the Goldman Sachs Commodity Index (GSCI) versus the S&P 500 stock index (which only a pair of weeks ago, again touched new record highs in nominal value).
The chart covers the full fiat currency era, going back to 1970 until the end of 2017.
In this near half-century, the ratio has gone from commodities having been undervalued to overvalued versus S&P 500 stocks in 6 rather prominent swings covering an average of 8 years for each swing to peak or bottom.
The current bottoming swing we are on is about 11 years long; well overdue for a turnaround historically speaking. But again, we are operating under complex command and control financial markets. Thus this current situation could persist more protracted than we may think possible.
Here is this same chart valuation metric updated to 2019. As you can see, since the start of 2018, we have found a new low in the value of this commodity index vs. the S&P 500 index.
With Federal Reserve spokesmen and women now clamoring for more inflation than their rigged 2% target, I will operate assuming one of the fastest ways to get price inflation, or further fiat currency devaluations is through higher commodity prices in the decade to come.
My contention is this chart will flip and revert sharply as new monetary phenomenons like MMT allow for the powers that be to partially default on many trillions of promises made which cannot be paid off currently at these fiat US dollar values.
In other words, the fastest and easiest way to exit the situation we are in is further devalue the currency. The longterm US dollar devaluation trend we have been in since 1913 will not likely revert anytime soon.
Commodities like silver should have better days and years to come.
The next chart I will show, points to times and durations in which the COMEX silver futures markets
fell under timespans in which the silver price was beginning to find price points which match the eastern world’s demand for the real things.
Primarily the black line reflects the overt influence of western silver derivative markets on silver’s ongoing spot price (the red line on the chart). The blue line on this chart shows silver price action compounded daily outside of New York trading hours.
If we operate under the assumption that western financial authorities have been allowing large commercial banks to profit off of subjugating silver prices over the many decades, we can see how silver’s price has generally outperformed during eastern hours in which such western forces have been away from their silver trading desks.
Of course, no one can tell us the future, but looking back at this chart there have been some somewhat recent few durations or points in time, which diverting some silver bullion allocations into other asset classes made good sense.
Check out the three specific points in time, where the red western driven spot price for silver hit the blue eastern measured silver price.
Early 2006, late 2007 early 2008, and in the spring of 2011 are all points in time where the eastern driven silver spot price and the world spot price in red converged.
The question to ponder now is at what fiat US dollar price point might this convergence again reoccur.
Currently, the eastern driven silver price is at $80.15 oz silver.
Hard to guess today at what price it may be again when the red and blue lines reconvert.
My suggestion is looking back in time when they do. That is a reliable timeframe in which one should consider divesting some silver bullion capital into other perhaps then undervalued asset classes.
Moving along, one of the easiest and free options to see how emotional an asset class and or financial market is becoming. By merely using Google Trends.
The URL is www.Google.com/trends, and it essentially measures individual human beings conducting internet searches for any terms.
This chart I am showing you now is for the highly searched term ‘silver price.’
Looking back we can see spikes were coinciding with the three 2006 to 2011 timeframes in which the prior chart pointed out were good times to divest some silver bullion holdings elsewhere.
Most spikes in this key search following silver’s run from around $9 oz in late 2008 up to $50 oz in April 2011, were to see how low silver spot prices were falling.
My expectation for if and when we pass silver’s still all-time price high of around $50 per ounce, the 2011 spike in silver price searches will get outdone by new higher volumes of people looking to see where silver prices may lead.
Look for the spikes in both silver price action and silver price search volumes to perhaps deem when is best to offload some silver bullion for other assets you may be keen on acquiring out and in time.
This Google Trend monitoring methodology works well with not only silver price.
It also performed remarkably well looking back at Gold Price searches.
Note the spike in August 2011 as gold eclipsed $1,900 oz.
Again in the coming decade as we perhaps near and pass the $1,900 oz price level, look for new search levels on google trends for ‘gold price’ to spike higher than the 2011 and then likely find a new higher average search volume month by month.
Look for the spikes in both gold price action and gold price search volumes to perhaps deem when is best to offload some gold bullion for other asset classes you may be keen on acquiring later on.
Here is the Google Trend monitoring methodology looking back at Bitcoin Price searches.
Late 2017 high as Bitcoin topped out just below $20,000 is rather obvious looking backward.
Now we will overlay this came chart with the simple lazy man’s google search for DOW.
This google search for the term ‘DOW’ is the fastest way for an equity investor can quickly see how the stock market is performing without using an application on their smartphone, for instance.
Here is a real-time example of a new all-time higher average level of searches with high spike and dive volatility since late 2017.
Great emotion and high volume search patterns are signs that an asset class is nearing a potential turning point.
The difficulty here is knowing what the financial system has become with interventions galore, where and how fast things could potentially roll over or even melt up further is a guessing game I am not taking part.
I like most of you listening prefer to buy historically cheap asset classes, not fearing the miss out on buying things that may be too hot, volatile, or overvalued.
The final and often cited metric we will look at today, to perhaps understand when silver gets overvalued versus gold is the longterm gold-silver ratio.
Now some might argue that since silver occurs in the ground at nine parts silver to one part gold, in a precious metal valuation peak timeframe, we may again see the Gold Silver ratio could revert to below 20.
This ratio dipped to as low as 33 in 2011.
The trend line on this chart suggests a reversion back towards 40 is coming again.
The question we all should ponder on silver price history and future is how much it may potentially overshoot to the downside.
What is fair value for silver?
What is overvaluation for silver?
My hope is some of the charts and tools we have covered here will help in my and your potential attempts at answering the question of ‘When to Sell Silver?” in the years that unfold.
Of course at SD Bullion we do not merely sell silver bullion, we also buy silver bullion and other precious metal bullion products from customers every day.
Visit SDBullion.com/sell for more information and real-time price quotes on silver bullion and other precious metal bullion products we actively buy.
Until next week, have a great one. And thank you for tuning in today.
About the Author
James Anderson has a BA in finance from Loyola University New Orleans. He has both worked and invested in the physical investment grade bullion markets prior to the 2008 global financial crisis.