Silver – A Long-Term Perspective

We all know silver is volatile.  When gold rallies, silver usually rallies faster and farther, particularly after the rally has been well established.

Volatility is not a reason to avoid silver.  Instead, now is a time to continue stacking.  Yes, silver almost certainly will correct many times, but examine the big picture.

Over the past 50 years prices for stocks, silver, gold, crude oil, health care, and presidential elections have increased exponentially, mainly due to massive increases in debt (see graph below) and devaluations of currencies.  Expect exponential price increases to continue.

Over 50 years the Dow Jones Industrial Average has averaged about 700 times larger than the price of silver.  Examine the log-scale graph (below) of 700 times the price of silver plus the DJIA.

F-Nat Debt

G-SI+DJ

  1. Prices have moved higher exponentially.
  2. You can see the silver bubble in 1980.
  3. You can see the small deviation from trend in 2011 caused by the silver rally to nearly $50. It was not a bubble.
  4. Another silver bubble will probably occur, but we have not seen a bubble in silver since 1980.

What about the DJIA?  Examine the 28 year chart of the DJIA – log scale.

G-DJIA monthly

  1. The DJIA has moved exponentially higher for three decades.
  2. The red ovals indicate “danger zones” where the DJIA rallied too far and too fast, corrected below its exponential trend-line, and then fell by 40% or more.
  3. The DJIA peaked in May 2015 and has only fallen slightly since then. Expect a larger correction.

Examine the silver (times 700) to DJIA ratio over the past 30 years.  This excludes the 1980 bubble in which the ratio peaked many times higher than the 2011 ratio.

G-SI-DJ ratio

  1. The 30 year ratio shows long term trends of investor preference for paper assets, such as the DJIA, versus hard assets such as silver.
  2. Silver prices and the ratio hit a multi-decade low in November 2001, as indicated by a green oval.
  3. The ratio is only slightly higher in 2016, as indicated by the other green oval.
  4. There is considerable room for the ratio to increase, which would probably involve a somewhat lower DJIA and a much higher price of silver.

CONCLUSIONS:

  • The DJIA reached a high in May 2015. The next major move is likely much lower, similar to the 2001 and 2008 corrections.
  • The price of silver, as indicated by the ratio to the DJIA, is near a multi-decade low. Expect the price of silver to rally substantially in 2016 – 2020.  $50 silver is coming, probably fairly soon.  $100 silver will take longer.
  • Silver prices and the DJIA rise exponentially, thanks largely to dollar devaluations and massive increases in debt.

There are many financial and political reasons to expect a preference for hard assets over paper assets in the next several years.  A few are:

  1. Negative interest rates indicate central bank desperation and financial craziness and should encourage sane investing in hard assets.
  2. Increased investor demand for silver. Read Steve St. Angelo.
  3. Silver prices tend to bottom, more or less, about the time the DJIA peaks. The DJIA hit an all-time high in May of 2015.  Silver hit a multi-year low in December 2015.  The next big moves should be up in silver and down in the DJIA.
  4. Global debt is estimated at $230 Trillion. When it finally dawns on people that this debt will not be repaid in current dollars, euros, yen, pounds etc. then people and institutions will want to protect their purchasing power and preserve the value of their money.  Negative interest rate bonds are not the answer.  Silver coins and bars are a far better answer.
  5. War! Desperate times call for desperate measures to inflate economies, inflate more bubbles and create distractions.  It could happen.

Silver thrives, paper dies.  This should be true for several more years.

 

Gary Christenson

The Deviant Investor

My books on Amazon

My books on www.gechristenson.com

9 thoughts on “Silver – A Long-Term Perspective


  1. Recent conversation at a friend’s dinner table.
    “I would never buy gold [or silver probably] because you can’t eat it.”
    “So, when you’re eating your dollar bills do you put salt on them, or do you find they already have enough salt on them?”


  2. The ultimate goal is to sell ones PM investment and acquire more paper
    money that can be spent back into a monetary system that abandoned
    the 16:1 silver ratio in 1873, and abandoned silver entirely after 1965.
    But there’s something more … “bankless lending”.
    I first heard mention of it from Simon Black, then began researching to
    see what it is… there is now a way to deposit your green asswipe into
    a savings account that pays 5% to 7% …. P2P (peer to peer lending).
    It’s a 7 year old system that’s catching on ! if the FED and the DC
    criminals are unable to stop it, the Talmudic banking system will
    be history ! P2P only lends to clients with stellar credit, and is NOT
    fraction reserve !!! They lend only what they have , and don’t leverage
    100:1 as is the case with the derivatives nightmare we have now…
    granted, it still uses dollars, but for now this is the best game in town…
    Much energy is being spent to conceal this new system… I’ve only
    done light research on it…if anyone knows more, please post it.


  3. Gary, If as you say “Silver thrives, paper dies” does it make sense to take out a personal loan from your local Bankster (say $5,000.00) sit on the cash from this loan and buy silver when it dips. Then as silver increases in value (hopefully) and as the value of the dollar diminishes you’ll be paying off your loan with worthless paper dollars as the price of your silver skyrockets! Granted there a lot of “if’s” in This scheme, but, doesn’t it sound perfect for a “Deviant Investor”! your thought’s…


    • Taking today’s price at about $15.26 (down hard today), assume 15% costs in buy/sell costs etc. (should be much less than that) and assume 12% interest for 5 years (should be less than that), then your approximate break-even price is 15.26 x 1.15 x (1 + .12 x 5) = $28. This should be a high estimate of costs. In my biased opinion, silver will be far higher than $28 in five years – I’m thinking more like $75 to $150 unless we go into hyperinflation, in which case the number will be far higher.

      Yes, I know you can’t eat silver, but you can’t eat paper dollars either. It is all about choices and consequences. I see silver as a good choice with minimal bad consequences.
      The Deviant Investor


    • The main risk is that it will take a much longer time than just a few years for PM prices to normalize. Since 1933, the federal government has successfully defended the Dollar against all kinds of market crashes debt defaults etc. The call for the collapse of the Dollar started in the early 1980’s – few people will remember that today. Thanks to ingenious financial and monetary policies, the Dollar remained king of all fiat currencies for more than 30 years. It is not impossible that the Dollar will survive the next 30 years as well.

      It took a few centuries for the Roman Dollar (called Dinarius) to collapse. So why should the Dollar collapse in just a few decades ?


    • There were those who sold their homes or took 2nds to do the same in 2011 and got slaughtered. Others did it in 2001 and pat themselves on the back.

      Today looks more like a low in silver, but what if it is a low like the low in gold before confiscation in the 1930’s. If the powers that be push hard for cashless and make it increasingly difficult for stackers to operate without a black market, which is the trend, then your strategy entails risks you may be averse to take.

      Also, anytime you take out loans to make a bet, you are categorizing yourself as “weak hands”. Sometimes weak hands win and their winnings are leveraged, but loosing can be crushing, and not only monetarily, i.e. your spouse told you not to bet the house or bet against the House/PTB. It also makes it possible to be wrong even when you are right because you can’t hold onto you position through volatility, or even some non related emergency that forces liquidation at an unfortunate price.

      If you really want to borrow to fund a $5000 dollar bet, you best be sure you have sold all your toys, scrapped all your luxuries, and tightened your belt after punching a few new holes in it on your monthly budget. Use all those funds (even it is just a couple hundred bucks) to stack some first, and see how you respond emotionally to the volatility of your chosen asset. If that is uncomfortable or nail biting when you have done it in a “strong hand” way (when you have a established a position that cannot be shaken by policy makers) then don’t go into debt to do the same.

      I do not dispute Gary’s numbers and have kicked myself for not borrowing to leverage my winnings, but you have to go into that kind of thing with eyes wide open. Gary is speaking with a perspective and confidence that is seasoned and informed and patient. You need to be circumspect to pull the trigger on something like that. Something as simple as a variable interest rate on your loan of choice could devastate your winnings in a hyper inflationary environment that kissed silver and killed borrowers.

      Just thinking out loud… take it with generous amounts of salt. 🙂


      • Manyarrows, You bring up many good points. The arrow that hit the hardest was pointing out that this amounts to a $5000 bet (with interest) I hadn’t thought of it that way! It just would be wonderful to beat the bank at their own game! So, here’s my new plan: Continue buying PM’s with existing capital,but, still take out the $5000 loan and bet it all on the Seattle Mariners winning the series! BTW- What is Morton salt company stock going for? “When it rains,it pours”!


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