Outlook For Silver In 2013

David Morgan presented his outlook for the silver price in 2013, starting off with two long term silver price charts, both adjusted for inflation. The first of the two charts is using the CPI as measured by the US government. The chart shows the peak price of silver in 1980 (adjusted for today’s inflation) which is $ 125.  The upside potential for silver is clear.

Still, these prices are rather irrelevant, as the price of precious metals reflects the value of currencies. In the extreme scenario where an infinite amount of money would be printed, the price of the metals could go to infinity (obviously a theoretical example). It makes more sense to look at the long term trend, which is clearly up. David Morgan used several charts in that respect:

• The long term silver price is rising and keeps on accelerating in its move up.
• The gold to silver ratio is in a long term downtrend (which is in favor of silver). Silver has been outperforming gold over the past decade.
• Expectations remain that silver will continue to outperform gold. The current gold to silver ratio of 50 to 1 is expected to turn to 16 to 1, which is the historic average of the monetary ratio. Here it gets interesting. It makes sense to look at the ratio from the perspective of metals in the ground. By doing so, the ratio becomes 7 to 1. David Morgan doesn’t rule out that a ratio close to that will be possible at the peak.
• Silver is appreciating in ALL currencies, no matter if there are temporarily large increases or decreases in given currencies.

Now it’s often mentioned that silver touched $ 50 in 2011, speculating that it has passed its peak in the current bull market. The matter of the fact is that it was a one day event and it happened only in the futures market. In the physical market for instance, there was a “bid back” situation, which means the buy / sell spread was very large (dealers were buying physical silver at $ 35 an ounce and selling at $ 50). Moreover, the fact that it took only one day doesn’t make the market.


When looking at the same chart taking the SGS inflation into account, we see a totally different picture. That’s a measurement that is used by Shadowstats.com and is using the CPI with the same calculatation methodology as in 1980 (which was obviously than today’s calculation). By doing so, the picture becomes more extreme. David Morgan explains that a move from today’s $ 33 to $ 100 would indeed be a threefold move up, but still significantly low compared to the historic peak.

 

The long term trend of the silver price in all major currencies was shown in the following graph. Mark O’Byrne shows two concrete examples that prove the idea that silver is a store of wealth:

• In 2008, while the financial crisis was raging, the Sterling was under bigger pressure than the other currencies. You see on the graph that silver lost value in all currencies, except in Sterling.
• Likewise in 2011, the Indian Rupee came under high pressure. While the silver price had declined against all currencies, it did not in terms of Indian Rupees.