Buying Silver Is Like Buying Gold At $554 Today

[MRBeyer]

This article has an interesting analysis on the future of gold and silver prices based on a historical upsurge in a 14 year market. I found it informative and figured it would make a great discussion topic for the silver seekers on treasurenet.

http://news.silverseek.com/SilverSeek/1323354649.php

 

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[mts]

This article has an interesting analysis on the future of gold and silver prices based on a historical upsurge in a 14 year market. I found it informative and figured it would make a great discussion topic for the silver seekers on treasurenet.

http://news.silverseek.com/SilverSeek/1323354649.php

I stopped reading after the first paragraph. Any time someone tries to tell you what silver should be based on the 1980 high you already know that they have no idea what they are talking about...

 

[MRBeyer]

Why?

I realize there was a manipulation scheme that drove silver prices in the past and ultimately causing the collapse in the 80's. But why isn't the price higher now? It should be in ratio to gold according to historical statistics yet it isn't. Also, the 12 year increase heralding a 14th year peak is documented in the past, is it possible this could happen again and should we collectively discount the information in this article?

 

[mts]

Why?

I realize there was a manipulation scheme that drove silver prices in the past and ultimately causing the collapse in the 80's. But why isn't the price higher now? It should be in ratio to gold according to historical statistics yet it isn't. Also, the 12 year increase heralding a 14th year peak is documented in the past, is it possible this could happen again and should we collectively discount the information in this article?

First off, thanks for letting me rant. Please don't take this post as any sort of personal attack. I appreciate all who post ideas here. Without some of the good people who have shared ideas here I wouldn't have gotten into the silver market to begin with. And I'm very glad that I did.

It may or may not make sense for the price to be higher now. My issue is with people trying to claim the price should be significantly higher simply because it was "momentarily" at $50 back in the 1980's. They then go on to conveniently ignore the prices from the last 20 years. If we looked at the price in any year between 1985 and 2006, the resulting inflation adjusted price today should be way less than $20. So why pick 1980? Why not pick 1990 as our data point? We all know why they do that. If the price spiked tomorrow to $1000 an ounce based on a false fear of massive hyperinflation, only to return to $30 the next day, would it make sense to use this temporary spike to gauge future prices? If 30 years from now people were saying that the price of silver should be $2500 an ounce based on this single momentary price spike, would you believe it? Of course not.

The mystical gold to silver ratio is also suspect. The federal government fixed the prices of gold and silver in what turned out to be the most famous case of price manipulation known to man. Once they stopped the practice the price of gold and silver diverged rather quickly. This shows that the ratio is completely artificial and not driven by market forces. Basically, the government made up a ratio that made sense to them at the time and forced it down everyone's throats. Does it make sense today to put any stock whatsoever in that ratio given that it has not held true for the past 100 years? What if tomorrow we found a HUGE silver lode that quadrupled the world silver supply overnight? Would you think that the price of silver should stay fixed to the price of gold instead of plummeting due to increased supply? A true gold to silver ratio doesn't even make sense. It implies that gold and silver are physically tied together in every way. The supply, demand, uses, and even physical properties would have to be tied together by some static ratio in order for it to make any sense whatsoever to have a true gold to silver ratio. We know that this is not the case. The government ignored all of these factors when creating the original ratio. It was done out of convenience in order to peg the currency to a fixed "value". And lets not forget that they just as easily could have enforced a gold to copper ratio instead. Would you put stock in such a ratio if it existed in the past?

As for historical markets.... past results do not guarantee future performance. I too saw what appeared to be a pattern in the prices between 1980, 2008, and the current silver chart. I did a post about it where I talked about how eerily similar they looked. It turned out to be false. It is easy to see what you want to see in historical charts. I've written numerous programs that analyze charts looking for patterns. And I have never been correct. I don't see why this time will be any different. I'm sure that if you went back and looked at silver reports over the years, this same pattern has been "seen" many times in the past. There are undoubtedly numerous people who looked at charts in the 80's and 90's and claimed that it was about to break out. And yet, it never did. We tend to forget about all of the times when people were wrong. Instead, we bet money that the next guy is finally going to be the one that is right.

By the way... if you are going to look at past historical data and hope for a repeat then you are going to be very disappointed. After 1980 the price dropped and languished at less than $10 for about 20 years. Why isn't the article saying that we should expect to see this again? If the $50 price spike from 1980 is matched with the $50 price spike in 2011, then the outlook is not very good. That would mean that in the next couple of years we are going to go below $10 and stay there for a long, long time. Now, I don't really believe this. But it sure points out the lunacy of selective sampling being done by the author of the article. He's all for matching up the "good parts" of the historical price chart. But he is completely ignoring the "bad parts".

I will be the first to admit that I don't know what I'm talking about. Taking my advice on any investment matter is a very bad idea. What I typically tell people is that if you want to make money, do the exact opposite of what I do.

 

[jim4silver]

What is interesting about all of this is that none of the mainstream gold/silver bug pundits have called the market right for the past 6 months or so (at least the ones I read regularly). Thus, I believe that nobody really knows for sure where the market is headed short term.

What we have witnessed in the recent past is the power of the paper markets to move the price quite easily, irrespective of market fundamentals that should be influencing the price of PMs now, ie, world market instability, rampant printing/easing, excessive debt, corrupt financial institutions, etc. Right now with all of what is going in in Europe, here and elsewhere, such as war and rumors of war, etc, gold and silver should be going up and not down relative to other investments. But they are not, and as it has been said, the market is never wrong. Thus, it is what it is.

I too don't believe the past, artificial, gold/silver ratio means much, other than perhaps showing at any given time which one is a better buy (silver when the ratio is higher, gold when lower). But to say that the ratio should be any particular number does not seem logical to me, in that in the past the ratio was fixed artificially by the gov and as MTS said the two metals have different functions in a sense.

But the best way to come up with a guess or prediction on where the prices of gold and silver are going is to study history. By that I don't mean PM charts, but what has happened at particular times when certain economic situations arose. Inflating the currency and adding to the national debt endlessly over time cannot lead to a healthy economy in the end. I still believe that there is really no possible way to fix what has been done with respect to our national debt and the fact that much of our manufacturing industry is forever lost to overseas. Even service jobs are now being outsourced. Until Americans are willing to work for less than "Bob" from the India call center, etc, those jobs are not coming home. At some point our debt will reach its limit, maybe 16 trillion, 20 trillion, who knows? To think it can go on forever without any ill effect on the currency and economy is delusional. When paper assets collapse or people lose faith in them, they go to gold and silver. It has happened over and over in the past, and I think will happen again, probably sooner than later.

In the past 100 years there have been mostly times where PMs were not as profitable as investments as compared to stocks, bonds, etc. But there have been a few times where PMs made gains that outperformed those other investments. Clearly the past 10 years have been one of those "times" where gold and silver outperformed other investments in a general sense.

Personally, I don't believe that "time" is over. All good bull markets have some periods of consolidation where the commodity moves down a bit or sideways. Further, due to all the various "paper" plays for PMs that now exist, it is not hard for large money players to have an influence in whichever direction they desire without having to own the underlying physical metal or even bring it into the picture directly.

The key with whether or not the current PM bull market will continue much further depends on whether or not the physical metal will become more in demand, and whether the paper plays will be eschewed by the big and small money players in favor of physical. Unlike paper plays, physical plays are limited by the supply available. Physical supply of PMs cannot be printed or produced at will like paper plays. There are continuing reports of countries buying up loads of gold and some are having their gold repatriated after storing it in other countries for years. They know something I believe.

Even though I don't listen much anymore to what the pundits say on a daily basis, I still believe they are correct in that someday over the rainbow silver will top $100 per ounce and gold $3000 or more. I might be wrong or I might be right. Either way, I have made my bets by placing a large portion of my investment capital into gold, silver and platinum over the past few years. I plan to continue dollar cost averaging as cash flow allows, and if we do see a big downtrend I will load up on silver as much as possible, since I believe silver has a better chance for a higher percentage gain because unlike the other two I mentioned, it has not yet broken its one time high, unlike gold and platinum which have.

I hate to sound negative all the time, but I believe 2012 will have some bad things happening in the world which will be PM positive, such as more Euro mess getting worse, possible Iran issues, more bank failures, etc, etc.

All just my opinion.

Jim