Silver: the best investment opportunity of 2017?

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Here’s What “Stupid Cheap” Looks Like: The Inflation-Adjusted Silver Price

By Jeff Clark, Senior Precious Metals Analyst

A lot of readers liked the inflation-adjusted gold price chart we highlighted last month. It showed how dramatically undervalued it is, as well as how high it could reach when using the 1980 inflation formula.

Many of you asked to see the same chart in silver. Well, we aim to please. And what you’ll see below shows that silver’s undervaluation is even greater than gold’s.

Why We Must Adjust For Inflation

When trying to put the price of a particular asset into perspective, you have to adjust it for inflation. If you don’t, the long-term view is distorted and can lead to erroneous conclusions. It’d be akin to preparing your income taxes using 1980 forms.

Here’s a good example… as I pointed out last month, my favorite carton of ice cream sells for the same price as five years ago. But the manufacturer made the container smaller. Is my ice cream really the same price? I get less ice cream than I used to! That’s inflation. And in most cases the inflation is hidden, just like the price on that carton of ice cream.

However, as we also pointed out, there’s a trick to adjusting for inflation, especially the longer the time frame. And the trick is this: inflation measurements have been changed numerous times over the years. The methodology used to calculate the Consumer Price Index (CPI) has undergone at least 14 alterations since 1980. If the yardstick used to account for inflation has been modified that many times, how accurate can that yardstick be over long periods of time? It can’t.

Using the Same Yardstick

I asked John Williams of ShadowStats to give me an apples-to-apples inflation adjustment for silver. Essentially, John inflation-adjusted the price of silver using the 1980 CPI formula.

If we use the 1980 formula to measure inflation, the current price is near all-time inflation-adjusted lows. In fact, silver is selling below 1970 levels!

Its 1980 $50 peak would be the equivalent of $606.30 per ounce today. Silver may or may not get that high, but this shows just how great the potential is.

So, not only is silver dramatically undervalued at current prices, its potential upside is enormous. Check this out:

  • If silver were to match the inflation-adjusted price of $606.30, it would have to rise by 3,575%!

Even if silver never approaches this level, it’s clearly undervalued at current prices. It is a Best Buy.

Is Silver’s Sale Price About to End? 

Silver is also a Best Buy right now because of seasonality. If you click the above link you’ll see this chart that shows when silver historically has its biggest dip of the year.

 

 

The second half of June is when silver has, on average, its largest correction of the year. You’ll see the decline tends to reverse right after the 4th of July holiday. And it historically ends the year roughly 9% higher.

There’s no guarantee that price behavior will repeat this summer, but if seasonal tendencies do play out, your window to buy silver at its cheapest price of the year may be about to close.

Keep this in mind, too: premiums tend to spike when prices do, regardless of direction. In 2008/2009, Mike and I saw some dealers charge as much as 90% over spot for silver Eagles! We’ll see premiums spike like that again when demand soars. In contrast, current premiums are low.

Overall, though, I personally don’t worry about what “might” happen to the silver price. I continue to accumulate now—current prices represent tremendous value… the amount of protection relative to the degree of risk in the markets dictates I be overweight physical metals… and the potential upside from current prices is tremendous.

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