How High Will Silver Go?

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At a time when silver is exploding ever higher, it may be hard to believe that the white metal can continue to move on up. Or you may be tempted to think that there is no precedent for silver really launching higher without a major, Weimar style currency event. Obviously, in a “toilet paper moment” for the U.S. currency the fiat value of silver would likely shoot up into the trillions of dollars. It is in preparation for the possibility of such a currency accident that everyone should acquire some gold and silver. It is quite likely that everyone CAN’T do this, however, since there may come a time when many potential sellers of metal are so scared for their financial future that they decide not to sell. All the more reason to keep acquiring your gold and silver when you see the politicians arguing over how to rearrange deck chairs on the Titanic, and when the FED and other financial elites keep on creating fiat money. In fact, it was just reported that the monetary base in the US has increased something like 500 billion dollars in the last six months! To put things into perspective, the US monetary authorities have created 10 times as much fiat money in six months as all the silver coins and bullion hoarded over 4,000 years!

Leaving aside the issue of a real currency collapse in the dollar, allow me to throw three hyper- bullish scenarios for the silver price that are hardly hyped. For what it is worth, these prices are based on history:

The Case for 750 Dollar Silver

In the market during the last silver bull, the price of silver was as low as 26 cents in 1932 (this is according to Jastram, Silver- The Restless Metal, p.181). It briefly hit a high just under 50 dollars in 1980. I realize few people bought or traded silver at 26 cents, as there were all sorts of difficulties involved in doing so and trading in silver was suspended in the US from 1934 to 1963. But nonetheless, the market price of silver went up nearly 200 TIMES in 48 years. From the market bottom in silver just under 4 dollars ten years ago, this means that silver would need to reach roughly 750 to 800 dollars just to equal its last bull market. Remember that many observers feel the monetary and fiscal situation of our present world is far worse than during the last silver bull market, and that this silver bull could be EVEN BIGGER than the last one.

The Case for 2,000-2,500 Dollar Silver

www.gpoaccess.gov/eop/2011/xls/ERP-2011-table71.xls

According to this data, the monetary base in 1980 was around 140 billion dollars. Depending on what you believe the above ground amount of silver for investment was at the time (2-3 billion ounces), this means that at the old price high in silver of 50 dollars, the value of the world’s silver roughly equaled- if it did not exceed- the value of the U.S. monetary base. Today? The U.S. monetary base is over 2 trillion dollars, and yet there is less than half as much silver in the world. What would the market price of all silver for investment need to be to equal the U.S. monetary base? Between 2,000-2500 dollars an ounce, since there is roughly 1 billion ounces of silver coin and bullion.

The Case for 3,000-4,000 Dollar Silver

Most readers understand that gold is still held as a reserve asset by governments and central banks, therefore making it the preferred precious metal in the world. Silver is no longer in this position, and is not sought after as an asset for purchase by central banks, sovereign wealth funds, and, as far as I know, is also not purchased by pension funds or endowments. But what if these kinds of official or quasi-official entities started to buy silver? Wouldn’t this mean that silver was being revalued as a truly precious metal? One of the many paradoxes of the investing herd- and something that I have commented on before- is that people do not like to buy things that are cheap, undervalued, and boring. They like buy things that are expensive, hot, and all the rage. I also believe that as silver goes higher and higher- and as it become more and more portable and easy to store in large amounts- you will continue to see ever more investor interest. Since there is only about a third as much silver as gold in coin and bullion form above ground, silver coins could possibly become more valuable than gold someday. Remember that once upon a time, the value of gold and silver at least approximated the relative above-ground abundance of the two metals. People have become so accustomed to thinking of silver as “the poor man’s gold,” that they have failed to notice that silver coins are rarer than gold coins. If I transported someone from the 17th century and told them just how rare silver was today but then explained to them that silver was less than 1/30 of the gold price, I’m sure they would grab every ounce of silver possible. You might want to think about doing the same thing if you have yet to buy any of this supposedly poor man’s gold.

Some will also say that the above numbers of silver are not possible unless there is a collapse of the dollar. I suppose it depends upon what you mean by collapse. In the last silver bull, the dollar did lose over 70% of its value, but that collapse did not happen all at once. It essentially was a controlled, managed decline of the greenback. Currency debasement is the norm in the modern world after all and you might be surprised for how much longer debasement can go on without the world ending. You might also be surprised how far silver rises before most people even start to notice.

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