Silver Market: It’s 1993 and 2001 Again

Miles Franklin sponsored this article by Gary Christenson, the Deviant Investor.

The M2 measure of money supply has increased about 6.7% per year since 1971 when President Nixon severed the last hint of gold backing the dollar.  The subsequent deluge of digital dollars levitated prices for oil, trucks, hamburgers, the S&P 500 Index, silver and almost everything else.  Examine the log scale graph of M2 and smoothed silver prices. M2 rises, while silver prices increase to unsustainable levels, fall too low and then rise again.

In late 2018 silver prices are too low! They hit bottom in December 2015 and have risen since then. First slowly, then rapidly, as Hemingway said…

Analysis: Silver prices are too low.

Silver prices rise along with M2, but they are now well below trend. This graph shows that silver could rise above $30 in 2019.

Silver prices (below) fell after April 2011. A graph of monthly prices shows a six year base with an inverse “head and shoulders” pattern. A long base shows a large rally is possible. Silver prices could rise well beyond $35, the last peak before the crash in late 2012.

The graph of M2 and silver shows that both rise exponentially, with silver rising erratically. The ratio (below) shows silver prices are low compared to the currency in circulation in the U.S. economy.

Compare silver prices to the NASDAQ 100 Index (below). When the ratio is low expect silver prices to rally and the NASDAQ 100 to fall. The ratio in late 2018 has fallen to levels last seen in the year 2001 when silver began a ten year rally.

For perspective, the NASDAQ 100 fell over 80% following its bubble high in 2000. Silver prices bottomed in November 2001 at $4.01 and then rose to over $48 in 2011. The silver to NASDAQ 100 ratio shows that silver has languished while easy money levitated NASDAQ stocks. Buybacks, central bank purchases, and excessive optimism supported high NASDAQ prices.

However, optimism has recently turned into fear and a desire for safety. Silver, which is not anyone’s liability, should come to mind as safe and likely to zoom higher when the stock market corrects.

Total credit market debt has risen since 1971 at a compound rate of 7.9% per year because the banking cartel creates currency units from “thin air” via fractional reserve banking and QE scams.

Has anyone explained how debt can rise many times faster than economic growth for decades without severe consequences?

The silver to total Credit Market Debt ratio shows that credit has grown more rapidly than silver prices, and based on this ratio, silver prices have retreated to levels seen in the 1990s and early 2000s.

The average price of new houses is reported by the St. Louis Fed. That average price is low for the San Francisco market but high in many other areas. It’s an average. But the ratio of silver to the average house price (below) shows that silver prices are low, though the ratio is not as low as during the early 2000s when housing bubbled higher.

The silver to gold ratio (below) shows when silver is undervalued compared to gold, such as during the past three years. The ratio has dropped back to levels last seen in the early 1990s.  This ratio is an excellent long-term timing indicator.

Buy silver when the ratio is low (now) and sell after the ratio has risen to several times its lows.

Crude oil prices are volatile. They hit a high in 2008 at $147, collapsed to about $35 that year, rose to $114, and fell to a low of $28 in early 2016. Prices fell from over $70 to about $50 in the last two months. The ratio of silver to crude oil has stayed within a range for over thirty years. Silver prices could rise substantially from here even if crude oil prices do not.

SUMMARY:

• Silver prices rise exponentially along with M2, total debt and other financial metrics because dollars are continuously created and devalued.

• Compared to M2, the NASDAQ 100, and total credit market debt, silver prices are low and will rise in the next several years.

• Compared to the average prices for houses, gold, and crude oil, silver prices are low.

• Silver prices created a six year base with an “inverse head and shoulders” pattern on the monthly chart. Much higher silver prices are likely when prices – someday – breakout.

BUT WHAT IF…

• There is no guarantee that silver prices can’t fall lower. As in 2008, stocks are correcting. A crash might hurt good assets, such as silver and gold. However, silver prices in 2008 had rallied into a short-term high over $20. Today they have fallen nearly as low as in late 2015. The downside is limited even if stocks crash.

• Central banks might return to their usual playbook—reduce interest rates and “print” trillions of currency units to re-inflate bubbles. Or perhaps they want a massive crash for unknown reasons. “Printing” trillions of currency units will drive silver prices higher. A massive crash will push investors into safe assets—silver and gold.

• JPMorgan, if you follow Ted Butler’s analysis, has amassed 700 million ounces of silver bullion. They expect silver prices will rise. Don’t bet against JPMorgan and their greed. They own the regulators and congress. But their massive hoard of silver bullion should also encourage small investors to own silver.

• The U.S. stock markets look weak and will probably fall much lower in 2019. Silver is no one’s liability. When other liabilities are dodgy, silver will shine.

• The first great silver bull market occurred between 1971 and 1980. The next bull market extended from 2001 to 2011. The next silver bull market will happen from 2018? to 2023? Probably!

BOTTOM LINE:

Silver prices are too low by many measures. Stock prices are too high. Housing and auto sales are weak. It is late in the credit cycle—think 2008 again. It is time to assess risk versus reward and buy silver with currency units recycled from other assets.

Miles Franklin sells silver. Call them at 1-800-822-8080 and tell them you agree with the Deviant Investor about silver. Your price will not change, but I might receive a benefit if you give my name as your reference.

If you have questions or comments, email me: deviantinvestor “at” gmail.com.

Gary Christenson