It’s been an interesting subject over the last few months, and one that has led to naturally outlandish YouTube video titles and calls from some for ridiculously high price targets. So let’s look at this sensibly and the fundamentals that will need to play out for silver to hit new highs.
Dollar Hegemony
Silver, like most other major commodities is a dollar denominated product. Therefore when the price of the dollar is strong foreign investment demand for silver isn’t as attractive. This isn’t always the case by the way, but is the general rule. Since the Covid crash of March last year, the dollar has been in a steep downtrend against a basket of other major currencies. The dollar, like all fiat currency is losing it’s purchasing power. The rate that money is being printed in the US it will only serve to debase even further making the dollar weaker.
However, if the dollar was to lose it’s status as the world reserve currency and collapse, then all bets are off on how high Silver could go.
Inflation
Note the title is inflation not hyperinflation, the definition of which is prices rising out of control, typically 50% per month, and we aren’t there at this moment. The CPI is the manipulated government measure of inflation and we all know it isn’t representative of every day consumer prices. At present, and for the last few months, just about everything is going up in price. With a world lockdown, economies plummeting, and GDP not even close to pre-covid levels the only way to pay off the debt is through higher taxes, or to inflate the debt away. Gold and silver have been inflation hedges throughout time, and there is no reason to suggest now will be different. If the Fed steps in with yield curve control, then expect silver and gold to go higher still. If we get inflation like we did in the 80s (which wasn’t hyperinflation) then expect to see the sort of percentage increases we saw back then over a shorter time frame.
Supply/Demand Imbalance
We are already starting to see signs of this led by the wallstreet silver crowd buying up physical and the movement across the globe. Physical silver is being removed from the Comex and the LBMA at consistently greater rates than in the last decade. What is interesting to note is that some big name silver miners recently posted losses for the year, which admittedly will have had the Covid hangover attached however if they are not making money history suggests production will take a back step creating an even bigger supply/demand imbalance and higher prices. Some are suggesting that sSilver isn’t being released by miners as higher prices are forecast creating a serious supply shortage. Either way demand is outweighing supply, and with the Biden plan around the corner this will only drive prices higher.
Gold Relationship
This is the one that in my opinion could send silver prices to extremely high levels. If the NSFR is enforced from June 28, then central banks will have the opportunity to revalue physical gold and pay off the uncontrollable debt the world has. If this plays out, it should stop the paper market smashing of prices we see so often. As I have written extensively in previous articles, everything appears to be realigning and pointing towards higher gold prices due to the Basel III regulations. If the gold stacked by central banks is being used to back a digital currency or similar, or offset debt then higher gold prices leads to higher silver prices. As we have seen in previous bull runs silver is always late to accelerate higher than gold, but when it does it’s percentage increases are always way in excess of gold’s, and we haven’t seen silver at all time highs yet which it has hit in every one of it’s last major runs. This alone suggests we have a long way higher to go yet.
Concluding Thoughts
So what price could silver get to? According to the US debt clock, Silver should be at $4,797, but this is implausible. If we take the highs of 1980 and adjust for CPI inflation, that puts silver somewhere just above $140 now. If we take the historical gold to debt ratio up to today’s levels and place it against the mean of the gold/silver ratio, it puts it above $180. If we look at the mining ratio out of the ground and apply it against gold price today it would put silver at around $228. If we take the lowest gold/silver ratio over the last 50 years, it puts silver at $122 at the current gold price.
Out of the four subtitles mentioned above, whilst there are groundworks taking place for all of them, we are yet to see hard evidence of any, hence the price of silver is creeping based upon rumour and possibility of each. Every one on its own has the potential to propel silver significantly higher, however if we were to get a system collapse and a reset I would suggest triple dollarsilver would be a given. Some argue that is a 300% or so increase from today’s price and it won’t happen. When an asset is as cheap as silver is, then we aren’t talking about major numbers. From the March lows of 2020 to the August 2020 highs, silver price increased by around 157%. One could argue that was after a dramatic sell off, but even without that major drop, from it’s pre-Covid levels to August highs it still increased 76% in that short time frame.
Silver is one of the most undervalued assets on the planet; yet it wouldn’t be if the short manipulation didn’t occur. JP Morgan and the other 7 major banks’ stronghold has to end soon. Positioning yourself from current levels waiting for this day to come makes a lot of sense, and savvy investors have been frontrunning it for some time. Always remember though, nothing goes up in a straight line, so patience is going to be key here for what should be some big rewards in the next few years.