Silver: The Noise is Deafening!

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“Beam me up, Scotty!”

“I can’t Captain, the signal is weak and there is too much noise.” (My apologies to you Trekkies….)

That conversation (which did not happen) describes the problem with the silver and gold markets now. There is so much noise, false information and lack of clarity – and not enough signal – real data and understanding.

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  • The big banks put out “advisories” that silver (and gold) will make new lows, and subsequently cover their shorts or add to their long positions. All noise!
  • Bernanke recently stated: “No one really understands gold prices.” More noise!
  • Media shills are forever calling for a silver and gold bear market and new lows. (They have been calling for a bear market for a decade.) Noise!
  • Central banks obfuscate at every turn, while continuing to monetize debt, print money, make certain the banks are profitable, and enable banks to offload toxic paper. Unbacked paper currencies and gold are natural enemies. It benefits certain groups to increase the noise output and distract people from the reality of gold.
  • The Bank of England is “missing” over 1,300 tons of gold – maybe. And gold (and silver) prices are near three year lows. Maybe the “missing” gold was used to slam the market to those lows. Too much confusion and noise!

I turned bullish on silver back in 2003. I knew it was too high in April 2011 and due to correct. I thought the correction low occurred in June 2012 at about $26. Oops – it happens. When elephants fight, the grass gets trampled. When the bullion banks, central banks, the Powers-That-Be, and politicians pursue an agenda (such as levitating the S&P and pushing gold lower) the rest of us can be crushed.

More signal, less noise! Look at the B-I-G Picture!
(approximate prices and ratios – for perspective)

  Since August of 1971 Exponential Increase –
42 year Annual Average
Silver up a factor of 14 6.5% *
Gold up a factor of 32 8.6%
     
Crude Oil up a factor of 29 8.4%
M2 Money Supply up a factor of 14 6.5%
Cigarettes up a factor of 16 6.8%
U. S. National Debt up a factor of 42 9.3%
US Govt. Spending up a factor of 18 7.1%

* The price of silver is currently (August 2013) less than $20 so its annualized increase since 1971 is low, particularly compared to the increases for gold, government spending and the National Debt.

Yes, I know correlation is NOT causality. But if you think it through (using this highly simplified and more or less correct analogy), increasing the money supply is one important CAUSE of higher prices. Suppose you live on a desert island where the price of coconuts is $1 and the money supply normally increases only when the population increases. But unexpectedly the money supply doubles in a few months with no other changes on the desert island. Fairly soon the price of coconuts will rise to about $2. Prices are indeed affected by the total money supply in circulation.

In WWII it was considered an act of sabotage to counterfeit an enemy’s paper currency to create inflation in the enemy country. Now it is considered “quantitative easing,” or “stimulus,” or “beneficial monetary policy.” Worse, QE might be utterly necessary to prevent an economic implosion.

Since 1971 M2 is up an average of 6.5% per year, while national debt is up 9.3% per year. Subtract a bit for population growth and compare to gold – up 8.6% per year, silver – up 6.5%, cigarettes – up 6.8%, and crude – up 8.4%. In the big picture (42 years of unbacked paper currency) prices increased similarly to the increase in M2.

When the 1971 money supply (M2) was about $683 Billion in the US, cigarettes cost about $0.39 per pack. Now that M2 is about $9,600 Billion, cigarettes cost (on average) about $6.20 per pack. Certainly there are other factors, but increasing the money supply increases prices.

Medical services and college tuition increased even more rapidly during the past 42 years. Milk and bread increased less rapidly. It averages out. As M2 goes up, prices for wheat, cigarettes, health insurance, gasoline, “penny candy,” coffee, silver, gold and most things we need go up.

Current Considerations

  • Will the politicians (in any country in the world) balance the budget?
  • Will politicians reduce total debt?
  • Will the military reduce spending?
  • Is the world on the verge of world peace? (War is expensive!)
  • Are government programs likely to contract in cost?
  • Are federal, state and local pension plans healthy or do they need bail-outs?
  • Are Detroit and Chicago (and Greece, Washington D.C., Argentina, Zimbabwe and others) run efficiently and intelligently with healthy finances? Are there more cities and states in trouble like Detroit?
  • Will the Central Banks of the world risk a deflationary depression or will they print as much currency – monetize debt – inject liquidity – increase M2 – as needed to keep the system moving and the Powers-That-Be remaining in power?
  • And if increases in M2 strongly correlate in the big picture to increases in the prices for crude oil, cigarettes, gold and silver, what should we expect for those prices in three to five years?

Correct! The data signal is clear – more inflation, higher prices, and:

  • Politicians will not stop spending.
  • Politicians will not balance the budget.
  • Military spending will remain elevated.
  • Government spending on Social Security and Medicare will increase rapidly.
  • National debt will exponentially increase and probably accelerate.
  • M2 will exponentially increase and probably accelerate.
  • Most consumer prices will continue to increase.
  • Food and energy prices will increase substantially.
  • Gold and silver will increase substantially.

The weak prices for silver and gold during the past three years are a correction to the massive run-up in prices from October 2008 – mid 2011. During that time silver increased from a low of $8.53 to a high of nearly $50. Gold increased from a low under $700 to a high over $1,900. They have been correcting since then. The correction is, I expect, over – FINALLY.

Ignore the noise! The signal is clear: M2 will continue to increase and consequently so will prices for most everything you NEED.

CAVEAT: If our leaders take us (accidentally or otherwise) into a deflationary post-apocalyptic “Mad Max” world, then M2 probably will decrease. I’ll bet the “powers-that-be” want to retain power and wealth and will do ANYTHING to avoid a deflationary collapse.

Are you stacking silver and gold and feeling secure? Or are you expecting central banks and politicians will take care of you with unbacked paper money, promises and more promises?

Read: What You Think is True Might Be False and Costly
Read: It’s Going to End Badly

GE Christenson
aka Deviant Investor

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10 thoughts on “Silver: The Noise is Deafening!

  1. Good article. Don’t forget about M3, which is where most of the money is “printed”- the credit cards, loans, and other types of monetary devices besides actual physical currency.

    We should have $20K gold to account for the total money supply.


  2. I agree with all. Buy when you think the time is right. I do think that silver will increase to all time highs soon (anywhere from now to 3 years). The world printing so much money and the credit crises looks bleek in the up coming months. All I can say is hold on to your hats, it will be a bumpy ride.

    Best Regards


    • reply to “I agree with all….”

      Yes, all time highs soon- as in now to 3 years from now – probably sooner than later. The next crisis will encourage more and more people to buy silver and gold.

      GE Christenson
      aka Deviant Investor


  3. When HSBC comes out and calls for a $17 to $23 price range. When it bumps up to $25, they’ll call for $26 to $20 dollar range. I’m waiting for is WHEN they start calling for a $65 to $80 dollar range, then its north of $100 we go.


  4. I dont think the mere fact that the increase in the money supply means prices will increase, at least in the shortterm. The country is more complicated than the isolated island and cocunut analogy. Overtime you correctly show increases in basic things. But what other choice is there? Money in america wont be backed again in PMs, not with our Congress and system of govt. All we can really do is wait an see. As far as silver and gold, the prices fluctuate greatly overtime. I dont advocate more buying, even now. There is always another time to jump in.


    • I agree – short term money supply increase does NOT mean a short term increase in the price of gasoline, cigarettes, gold, silver or whatever. But the point of the article was that over 42 years, an increasing money supply means increasing prices, and we can be assured that, aside from a devastating deflationary depression, the money supply will increase.

      As for buying gold and silver now, each person needs to decide for his particular needs. But, they are deeply oversold now and that has USUALLY indicated good buying conditions.

      Good luck with your financial security.

      GE Christenson
      aka Deviant Investor


  5. Appreciate the insight. It would appear that there may be some additional “softening” of the gold and silver PAPER price still to come. But, then, find something to hold on to, because that swhooshing sound should tell you to look toward the stars….that’s where the price of PMs are going!!!


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