2013 Silver Price Forecast: Silver Will Perform Like Gold on Steroids

[NoOneButPaul]

The ratio is based around the abundance of silver to gold in the crust.

There's 16X more silver than gold despite the fact there's actually more gold to invest in now than silver.

Historically silver traded at 16-1 with gold as well.

which would mean that if investors tire of it as they move to other investments, it will drop in price.

After what's happened the last 5 years with silver.... anyone who is still holding it isn't selling anytime soon.

Greed didn't push these people to sell when it hit 50$ and fear didn't push them to sell when it hit 27$ this past summer.

That should tell you something about silver stackers... we aren't going anywhere. A good lot of us (myself included) remain convinced the paper price of silver is a fucking joke and we instead use it to our advantage to stack on dips.

1% of the population stacks physical metals.... that's no where near a bubble. If tomorrow that number turned to 2% what would happen? What would happen if it hit 3%? 10%? 25%? 50% 100%?

That's when those of us who haven't sold yet, out of fear or greed, would be running to sell our stacks.

[Zippyjuan]

The ratio is based around the abundance of silver to gold in the crust.

There's 16X more silver than gold despite the fact there's actually more gold to invest in now than silver.

Historically silver traded at 16-1 with gold as well.




After what's happened the last 5 years with silver.... anyone who is still holding it isn't selling anytime soon.

Greed didn't push these people to sell when it hit 50$ and fear didn't push them to sell when it hit 27$ this past summer.

That should tell you something about silver stackers... we aren't going anywhere. A good lot of us (myself included) remain convinced the paper price of silver is a fucking joke and we instead use it to our advantage to stack on dips.

1% of the population stacks physical metals.... that's no where near a bubble. If tomorrow that number turned to 2% what would happen? What would happen if it hit 3%? 10%? 25%? 50% 100%?

That's when those of us who haven't sold yet, out of fear or greed, would be running to sell our stacks.

Hmm Let's see. Abundance of elements in Earth's crust: http://en.wikipedia.org/wiki/Abundan...th's_crust

Parts per million:
Silver (Ag): 0.075
Gold (Au): 0.004

That would make silver about 19 times more abundant than gold. But abundance in the Earth is not always a measure of relative values. Platinum is slightly more abundant than gold (0.005 ppm) yet it is usually more expensive. Ease (costs) of extraction and demand will impact it.

Now if the abundance ratio DID hold for pricing, with gold currently about $1700 an ounce, silver should be about $90. A large percentage of gold mined is stored in vaults (20% of everything ever mined) not being used for anything which artificially reduces the supply. Silver is not held in reserve in such amounts.

20 year Historical gold/ silver ratio chart:


http://goldprice.org/gold-silver-ratio.html

Looks like it has been closer to 60 times than 16. A 60 ratio with gold at $1700 would put silver at $28 an ounce.

Historic chart for silver- looks like until recently it was pretty flat.

http://www.kitco.com/scripts/hist_ch...rly_graphs.plx

Gold- historic prices:
http://www.kitco.com/scripts/hist_ch...rly_graphs.plx


Silver being "gold on steroids" doesn't seem to match up with the graphs. The price of gold seems to vary a lot more than the price of silver does.

[Steven Douglas]

Hmm Let's see. Abundance of elements in Earth's crust: http://en.wikipedia.org/wiki/Abundan...th's_crust

Parts per million:
Silver (Ag): 0.075
Gold (Au): 0.004

That would make silver about 19 times more abundant than gold. But abundance in the Earth is not always a measure of relative values. Platinum is slightly more abundant than gold (0.005 ppm) yet it is usually more expensive. Ease (costs) of extraction and demand will impact it.

Big trouble looking only at abundances found in the crust, since that does nothing whatsoever to influence price. The fact is, we don't know where all deposits are, or what the real abundance is in terms that are related to what we can discover and actually get to. There could be fifty thousand tonnes of gold sitting in a near-surface plot somewhere close to some antarctic shelf, and it would skew everything. Extraction costs are always in the present, but they affect FUTURE abundance, and FUTURE production. But even with extraction costs and demand factored in, a key fundamental for physical and its scarcity as it affects price is ABOVE GROUND ABUNDANCE. And for that we have actual production numbers, where there is a known ratio of what is coming out of the ground RIGHT NOW.

From that same wiki link, the far left column of the chart shows production for 2011.

2011 GOLD: 2,700 tonnes
2011 SILVER: 23,800 tonnes

CURRENT SILVER/GOLD ANNUAL PRODUCTION RATIO FOR 2011: 8.8:1

[Zippyjuan]

Big trouble looking only at abundances found in the crust, since that does nothing whatsoever to influence price. The fact is, we don't know where all deposits are, or what the real abundance is in terms that are related to what we can discover and actually get to. There could be fifty tonnes of gold sitting in a near-surface plot somewhere close to some antarctic shelf, and it would skew everything. Extraction costs are always in the present, but they affect FUTURE abundance, and FUTURE production. But even with extraction costs and demand factored in, a key fundamental for physical and its scarcity as it affects price is ABOVE GROUND ABUNDANCE. And for that we have actual production numbers, where there is a known ratio of what is coming out of the ground RIGHT NOW.

From that same wiki link, the far left column of the chart shows production for 2011.

2011 GOLD: 2,700 tonnes
2011 SILVER: 23,800 tonnes

CURRENT SILVER/GOLD ANNUAL PRODUCTION RATIO FOR 2011: 8.8:1

You are correct on all of that. And you are also right that even the extraction rates do not necessarily mean that the prices should be in that ratio either.

Ease (costs) of extraction and demand will impact it.

Now if that 8.8 extraction ratio was to be the "proper" price ratio, with silver at $33 an ounce then that would make gold $290 or with gold at $1700 then silver should rise to $193- but that is nowhere near the historic relative prices.

[Jordan]

The ratio is based around the abundance of silver to gold in the crust.

There's 16X more silver than gold despite the fact there's actually more gold to invest in now than silver.

Historically silver traded at 16-1 with gold as well.




After what's happened the last 5 years with silver.... anyone who is still holding it isn't selling anytime soon.

Greed didn't push these people to sell when it hit 50$ and fear didn't push them to sell when it hit 27$ this past summer.

That should tell you something about silver stackers... we aren't going anywhere. A good lot of us (myself included) remain convinced the paper price of silver is a fucking joke and we instead use it to our advantage to stack on dips.

1% of the population stacks physical metals.... that's no where near a bubble. If tomorrow that number turned to 2% what would happen? What would happen if it hit 3%? 10%? 25%? 50% 100%?

That's when those of us who haven't sold yet, out of fear or greed, would be running to sell our stacks.

I'm pretty convinced that Ron Paul fans will probably own collectively most of the silver that's mined each year from here on out. Good on you guys. With like 700 million ounces mined each year, you guys probably account for a good majority of investment demand. Keep on buying! Sky's the limit as long as you keep on buying.

[Zippyjuan]

Check out this chart for gold price history I finally found. What would people forecast it will do over the next ten years if you saw this (and how does it look compared to today's gold prices)? Add the caveat that history does NOT have a habit of repeating everything. Yellow line is gold. 1972- 1980. (article was comparing Treasury yields on the blue line to the price of gold- Treasury interest rates run inversely to prices- falling prices means rising rates of returns but it was the gold price I wanted to show). Looks good- huh? Want to get in on the rising prices?


http://www.zerohedge.com/news/messag...time-different


The answer is that during the next year, it doubled but for the next 20 years after that it declined. Who would have thought? The chart ends in 1980 with gold at $415 an ounce. Later the next year it peaked at $850 and the next two gold charts from the same link:
1980- 1986:


1986- 2002:


2002 is the same price it was in 1979. Again, "past performance is no guarantee of future returns" as they say in financial reports.

[Steven Douglas]

Paul Saur at rapidtrends.com wrote a pretty good article on this back when silver was at $12-$13/oz., called "The “Optimum” Gold / Silver Ratio"

Excerpt

So, global silver/gold production ratios have drifted somewhere between 8:1 and 11:1. About 2500 years ago, the silver/gold price ratio started off near 10:1 (which makes sense), and slowly edged up to about 16:1 by the 1860’s, where it was currently fixed by the US Government. However, the gold/silver ratio destabilized in the mid 1860’s, triggered by fiat currency creation used to finance the American Civil War, and the ratio has since been all over the map in the last 140 years, ranging as high as 100:1.

....

Yet, at current silver prices of $12-13 an ounce, the market value of annual global silver production is only about 8 billion dollars. For a precious metal that is also indispensible to society, this kind of pricing is ridiculous. Since silver is literally more important than gold, yet gold retains the sentimental favorite crown, watch for the “optimum gold/silver ratio” to eventually come to its new resting place around 5:1, with the potential for parity.

I don't ever foresee a time of parity between gold and silver, but I do agree with Saur about the underlying fundamentals, and think his reasoning is otherwise sound in terms of the direction silver is ultimately headed. But what do I know, I'm a silverbug with glazed over eyes! Conventional wisdom even among many PMbugs is to prefer gold over silver, a big reason for which is that it's the monetary playthings of governments and likely to return as money in one form or another. And while I do stack gold, I don't see it that way at all. In my eyes, and only because of silver's VASTLY superior utility, and future demand that has little to do with monetary demand, I believe that silver is destined to hit some middle ground between its present price and gold.

Also, I think we may be in for some more surprises re: other commodities, not conventionally and historically used as money. Technology has come a long way since UNSOUND monetary policies began their temporary global reign. Monetary policies as market solutions with sound currencies have never been tested, and have yet to evolve using all the new technology that is now in place. Legal tender laws notwithstanding, we have reached a point where virtually any commodity can be used as backing for money. It all gets stored anyway. And it all weighs the same on paper, or contained within a magnetic stripe. Gold and silver are great, don't get me wrong, but give me a system with market assured 1:1 backing (including what I'm designing now), and I don't care if the currency is 100% backed by bailments in lead, or salt. Anything that is hard to game, and the more variety and diversity the merrier.

[oyarde]

I bought copper @1.33, silver @ $9, I actually have some 12k gold I bought for $3.45 a gram, I have silver war nickels , I pd 5 or 6 cents for. I am, though , an old guy.

[Jordan]

I think what makes silver and gold so difficult to project is that we can't possibly know the true cost of every mine in real terms. For example, some company might bring up 30% copper and 70% gold (just throwing stuff out there) and then allocate most of the cost to copper and report a $100/oz mining price for gold. So any data you get will still be unreliable and difficult to sort. That's why I don't understand the idea of ratio comparisons, when there isn't anything really suggesting the logical thesis for the price ratios.

I think of silver and gold as the ultimate test of a greater fool theory. You can make money with them so long as someone else is willing to pay more for it than you. So, as long as investment demand makes up a significant part of all silver and gold demanded, then silver and gold are going to do fantastic.

Here are two charts I pulled from Google:






If you can skillfully determine when investment demand will peak, you'll make bank. Much easier said than done, though - and I'm sure someone could make the case that silver investment demand will never peak because it's a currency or whatever.

Basically, by now there has probably been a full year of silver/gold production bought as an investment in just the past 5-10 years. If someone starts liquidating, that could be ugly.

I would be much more bullish on silver/gold if industrial demand made up a larger part of total demand. That would make me feel better about silver/gold being used up or effectively sequestered so that the cost of it can keep going higher.

[Steven Douglas]

I think what makes silver and gold so difficult to project is that we can't possibly know the true cost of every mine in real terms. For example, some company might bring up 30% copper and 70% gold (just throwing stuff out there) and then allocate most of the cost to copper and report a $100/oz mining price for gold. So any data you get will still be unreliable and difficult to sort. That's why I don't understand the idea of ratio comparisons, when there isn't anything really suggesting the logical thesis for the price ratios.

I think of silver and gold as the ultimate test of a greater fool theory. You can make money with them so long as someone else is willing to pay more for it than you. So, as long as investment demand makes up a significant part of all silver and gold demanded, then silver and gold are going to do fantastic.

I'm going to agree with you on the greater fool theory to the extent that it applies to gold and silver as investments and pure speculation.

Housing and Dotcom speculation and malinvestment bubbles were perfect examples of the greater fool theory in action. In the case of dotcoms, it was more like fiat currency, with the illusion of wealth created out of little more than vapor, followed by a well-deserved crash, and inexorable return to vapor, since no underlying fundamentals existed to give it a floor.

Real estate, on the other hand, has underlying assets of real value and real demand, quite outside any speculative fevers that might exist. So while the greater fool theory still applied, it was applied ON TOP OF something that had a real value floor to it. Unlike imaginary dotcom wealth, physical assets like land and property didn't vanish into nothing when the bubble collapsed. So not ALL of the market activity was based on the greater fool theory -- or you wouldn't be invested in that market. The idea is not that a greater fool (of a speculator class only) "is willing to pay more", in your case, so much as the average person, who is thinking in terms of real needs and demand only, and not rent-seeking investment, "is always willing to pay something".

What you seem to be suggesting is that gold and silver are more like dotcoms than land and real estate -- that somehow the exchange value and market prices that do exist are all based on ethereal dotcom-like vapor. I would submit most of the derivatives are precisely that -- VAPOR, as well as a perfect example of the greater fool theory. But the underlying physical that those derivative continuously (mis)represent are anything but vapor. If the derivatives are destroyed, and the illusion of wealth FOR MOST people is wiped out, the physical itself is not only NOT wiped out, but skyrockets in price. If that happened, nobody would be saying, "Ah, well, the paper is worthless, I guess that means the physical must be worthless too. The fundamentals of physical PM's has NOTHING to do with a greater fool theory, and everything to do with solid fundamentals, and a very real demand for the physical that has always existed, and always will. Just like land and real estate. Saying "it's all just based on belief anyway" is how the greatest fools of all are created, in all cases, from those who lack the capacity to differentiate between what is real and what is an illusory counterfeit of something that is real.

If you can skillfully determine when investment demand will peak, you'll make bank. Much easier said than done, though - and I'm sure someone could make the case that silver investment demand will never peak because it's a currency or whatever.

Basically, by now there has probably been a full year of silver/gold production bought as an investment in just the past 5-10 years. If someone starts liquidating, that could be ugly.

I would be much more bullish on silver/gold if industrial demand made up a larger part of total demand. That would make me feel better about silver/gold being used up or effectively sequestered so that the cost of it can keep going higher.

Every single bit of the above is in the context of short term speculation and investment, in a regime that is papered over in "vapor" derivatives and counter-party claims that could eventually all go up in smoke, the production and "aggregate stock" ratio fundamentals of which have limited effect on prices that are coupled to and determined by the quantities of both paper and physical. In that limited context only, the ratios really aren't that important or meaningful at all. Absent all the ultimately worthless paper, however, suddenly those ratios become highly significant.