Silver – Keep It Simple!

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Gold    Silver    Economy    Central Banking

(March 2013)

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  • Nixon dropped the link between the dollar and gold in 1971. Thereafter, the money supply rapidly expanded, consumer price inflation went wild, and both silver and gold increased in price by over a factor of 20 in early 1980.
  • Volcker raised interest rates, killed both inflation and inflationary expectations, and changed the economic landscape to allow for a nearly 20 year bull market in stocks. Silver and gold dropped below their long-term up-trend. Why put money into silver from 1982 – 2000 when it was easy to make money in stocks?
  • The stock market crashed in early 2000, and the world changed after September 2001 (9-11). After that event, borrowing, spending, massive deficits, exploding national debt, war, and even bigger government became the norm. Stocks have gone nowhere, on average, for the last 13 years. Silver and gold, anticipating the massive increases in debt and money supply, woke from a two decade sleep and began a bull market that is likely to run for many more years.
  • The correlation is simple. More debt means higher prices for silver. Examine the following graph. Note that RSQ = 0.916 for smoothed (13 period moving average) monthly silver prices vs. National Debt – a close correlation.
  • You may not believe the bull market in silver will continue, but I suspect that nearly everyone believes that debt will continue to increase – or until the system resets in some future catastrophic event. I’m not suggesting that increasing debt forever is good or sensible or even possible, but I have seen no evidence that indicates Congress or any president is willing to balance the budget and initiate a sane spending policy.
  • If silver and gold prices correlate, on average, with the national debt and debt will increase until a crash/implosion/hyperinflation event restructures our economy, then you can bet on much higher silver and gold prices in the future.
  • Volatility will increase. Gold accelerated into a new high in 2011, and silver almost exceeded its 1980 high that same year. Both markets have been ugly, from a bull’s perspective, since then. Expect future parabolic rallies and vertical drops to become more intense in the next four years.
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  • Expect more frightening and silly statements from Goldman Sachs et al about gold going down to $1,200, while they prepare to book fantastic profits from the rally they will encourage, when the time is right for them. The names differ, the game is the same. It hasn’t changed in hundreds of years.
  • If you want stress, play the futures market in silver. If you want a long-term investment, buy silver at these low prices and wait for the powers-that-be to devalue the various Dollars, Euros, and Yen that we use. Silver and gold prices will be much higher four years from now, regardless of what you are told via the “party line” from the Goldmans of the world.

Conclusion

  • KEEP IT SIMPLE! Debt is increasing, money supply is increasing, silver and gold prices are increasing.
  • There is no political will to make any material change in the system until a crisis forces change upon all of us. After the crisis, would you rather own gold, silver, Goldman promises, paper dollars, or sovereign debt paper issued by an insolvent government? Read Ten Steps To Safety.
  • Buy silver at depressed prices (like now). Sell some, not all, after a big rally, such as in 2004, 2006, 2008, and 2011. Another big rally is coming. Read commentary from Jim Sinclair.
  • KISS: Keep Investing and Stacking Silver. Keep It Silver-Simple.
  • It is your choice. Silver or paper? Physical metal or computer-generated paper equivalents? Thousands of years of history where silver has functioned as a store of value and as valuable money or decades of broken economic promises? Keep Investing and Stacking Silver!

GE Christenson
aka Deviant Investor

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11 thoughts on “Silver – Keep It Simple!

  1. The correlation does not explain causation.

    Just because debt and silver look like they have been moving up together does not mean that one caused the other.

    Silver is an industrial metal. You can also chart the growth of emerging markets and relate that to silver. If/when growth of emerging markets falls, expect silver to fall too.

    Showing rising debt with rising silver is not a complete story… there are countless things that have been rising so chart that will silver and voila, they are correlated… but it doesn’t mean they are related or that one affected the other.

    Chart the silver price with global population, defense spending, social security payments, …etc.


    • Correlation does NOT mean causation. You are correct. But consider:

      1) The currency supply has been increasing exponentially since 1970.

      2) Much of the cause of the currency supply increase has been deficit spending by the government, which increases the national debt.

      3) Hence the national debt has increased exponentially since 1970.

      4) Gold is the ultimate money and store of value. Hence its price, on average, increases with the increase in currency supply.

      5) Silver is both money and a commodity. Since about 2000, the price of silver has been driven more by investment demand for silver as money. Hence its price has increased substantially because of the increased currency supply, in addition to the increased investment demand.

      6) Deficit spending increases debt and increases currency supply and gold and silver (real money) increase in price accordingly.

      7) Other factors also affect price – such as industrial demand, sale of surplus silver, changes in mining laws and mine costs etc.

      8) On average, national debt is a good proxy for currency supply and that correlates on average with the price of real money – gold and silver.

      GE Christenson
      aka Deviant Investor


  2. Pingback: SilberNews – 12.03.13 – Preis folgt Volumen | DER KLARE BLICK

  3. What would this char look like if it went back further? I was just wondering what the 1980 high and time span in between would look like.



    • The chart of gold is similar only the correlation with national debt is even tighter. I did an article on gold and the correlation several months back. You can find it in the archive on gold.

      GE Christenson
      aka Deviant Investor


  4. Can you please explain that chart? What is RSQ? And how does the cents x billions work? I really can’t figure out how the silver line on the chart correlates to the price of silver. I like the look of the chart…but I can’t explain it to others at all. Please help


    • re the Chart of National Debt vs. Silver Price:

      1) RSQ is a statistical measure of correlation between two data sets – in this case the National Debt and price of silver. 8 It stands for “R Squared” which is the square of another statistical measure. Bottom line: it ranges from 0.00 to 1.0 and a correlation above 0.90 indicates a high degree of correlation.

      2) The left axis is the National debt measured in $Billions. Example: the top number of 17,000 when measured in billions is 17,000,000,000,000 – $17 Trillion dollars. Current national debt is slightly less than $17 Trillion.

      3) The right axis is the silver axis. The top number is 4,000 or 4,000 cents or $40.00 for the price of silver. The current price of silver is appx $30.00, or 3,000 cents on the chart. The red line is the price of silver smoothed with a 13 month moving average so it averages out much of the volatility.

      4) You can see that the price of silver was less than $5.00 in 2001. Actually it hit a low of $4.10 in 2001 and has gone up erratically since then.

      5) The whole point of the graph is to show that national debt – blue line measured on left axis is quite similar to the price of silver – red line measured on the right axis.

      I hope this helps explain the graph.

      GE Christenson
      aka Deviant Investor


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