That’s correct. Going by the historic Dow Jones-Silver ratio, it
points to $300 silver. This may seem outlandish or a play on hype, but
it isn’t. While many precious metals analysts have forecasted high
three-digit silver prices, I didn’t pay much attention to them.
However, after I looked over all the data, $300 silver is not a crazy figure
at all.
Let me explain. The U.S. economy suffered a fatal blow in
the 1970’s as its domestic oil production peaked and inflation soared.
To protect against the ravages of inflation, investors moved into gold and
silver in a big way. Yes, it’s true that the Hunt’s bought a lot of
silver during the 1970’s, but who was buying gold to push its price to $850
in 1980 versus $35 in 1970. Furthermore, who was buying all the oil to
push its price up to $36 in 1980 from $1.80 in 1970??
As U.S. oil production and the EROI- Energy Returned On Invested continued
to decline in the following decades, the American economy transitioned away
from its high-paying manufacturing economy to what I call a LEECH & SPEND
SERVICE ECONOMY. Thus, each new decade brought about a new bubble to
keep the facade of a growing economy alive.
We had the Department of Defense Military spending Bubble in the 1980’s,
the Tech Bubble of the 1990’s, the Housing Bubble of the 2000’s and now we
have the Auto, Housing, College, HealthCare, Stock Market, Retirement and
U.S. Treasury Bubble. The present highly-leveraged bubble will end all
bubbles.
Short Term Silver Market Analysts Can’t See The Forest For The
Trees
I wrote about this in my recent article, Precious Metals Investor: Must See Important
Charts & Data,
Unfortunately, Mr. Weiner’s gold-silver basis charting analysis wont put
food on the table when the complex supply chain system disintegrates due to
the collapse of U.S. energy production. However, owning physical gold and
silver at this time could help considerably.
Mr Keith Weiner and Dan Norcini both view the precious metals with
blinders on. I would imagine both of these trading analysts have no
idea of the future negative impacts of energy market or the ramifications of
the Falling EROI – Energy Returned On Invested. Thus, they continue to
make short-term forecasts as if the world will continue growing for the next
century.
Unfortunately, most Americans have their wealth tied into financial
products that have no future. Furthermore, the Auto & Real
Estate Market will crash to a level that will take the breath away from even
the most bearish analysts. Thus, there will be very few worthy
physical assets to own at this time. The two physical assets I value
the most are gold and silver.
The Historic Dow Jones-Silver Ratio Points To $300 Silver
If we look at the the Dow Jones-Silver chart, we can see we are no where
close to the 25/1 ratio of 1980:
You really can’t see the 25/1 Dow Jones-Silver ratio in 1980 as it is a
small blip on the bottom left-hand portion of the chart. In Feb 1980,
the Dow Jones traded at 865 points while silver traded at $35. Can you
imagine that??? The Dow Jones Industrials trading at 865 points?
Then when silver reached a high of $49 in April 2011, the Dow
Jones-Silver ratio fell to 250/1 from a high of 2,500/1 in June 2001.
Note: I am using round numbers here showing the Dow Jones-Silver
ratio. So, from 1980 to 2001, the Dow Jones-Silver ratio increased 100
times from 25/1 to 2,500/1. Then it fell 10 times to 250/1 in
2011. Currently, the Dow Jones-Silver ratio is 1,015/1.
We all know the broader markets are being propped up by the Fed and U.S.
Government Plunge Protection Team. However, at some point the markets
will finally resume their crash lower. If we assume that Dow Jones
falls to 7,000 points, a 25/1 Dow Jones-Silver ratio would suggest a $300
silver price (rounded figure).
Unfortunately, I don’t believe the Dow Jones Index will stop at
7,000. It will likely fall much lower.
Now, why would the value of silver rise as the Dow Jones falls in
value? This has to do with the massive amount of debt in the
system. Here is a chart of total U.S. debt from my article linked
above:
You will notice the debt remained flat in the early 1970’s, but started to
move up in the latter part of the decade. In the first quarter of 1980,
total U.S. debt stood at $863 billion when the price of silver traded at
$35. Today, the current U.S. debt is $19.2 trillion while the price of
silver is less than half at $17.30. The total amount of U.S. Debt has
increased 22 times while the value of silver is less than half.
Now, I labeled the chart as ENERGY DEBT because it takes the
burning of energy to create “PROFITABLE” economic activity to pay back the
debt. Investors need to understand it takes “Profitable”
economic activity to pay back debt. We really haven’t had profitable
economic activity for at least the past decade as U.S. debt would have been
declining. We must remember, profitable economic activity allows debt
to be repaid.
So, the Fed and U.S. Government have continued the official policy of
printing money and increasing debt to continue business as usual. This
has given the ILLUSION of growth and an increase in the Dow Jones
Index. However, if we take a look at the Dow Jones Index below, we can
see something is seriously wrong:
I have mentioned this before. However, the Dow Jones Index has been
rising since the crash in 2009 on lower volume. Furthermore, the reason
the Dow Jones Index has increased from 865 points in Q1 1980 to 17,663
recently was due to the massive increase of U.S. Debt from $863 billion to
$19.2 trillion during the same time period. The Dow Jones Index
increased 21 times while total U.S. Debt increased 22 times.
THIS IS NO COINCIDENCE!!!
Now, let’s take a look at the silver price chart over the same time
period:
Not only has the current silver price fallen in half from its high in
1980, its trading volume continues to trend higher. What has happened
here is this, the U.S. Government and Wall Street funneled American’s
funds into financial instruments such as Stocks, Bonds and Retirement
Accounts over the past 3-4 decades. These supposed financial
products are nothing more than debts masquerading as assets.
Let me present the next chart on the increase in U.S. Retirement Assets:
When the price of silver traded at $35 in 1980, total U.S. Retirement
assets equaled $991 billion. By the end of 2014, the total U.S.
Retirement market increased 25 times to $24.5 trillion. Thus, during
the time period when total U.S. debt increased 22 times, the Dow Jones Index
jumped 21 times and the U.S Retirement Market ballooned 25 times.
Unfortunately, the majority of Americans are holding onto
financial assets that are backed by U.S. debt that is 22 times higher than it
was in 1980. There lies the RUB.
So, why will the price of silver jump as financial instruments implode?
Because investors will move into physical silver in a big way as is not
backed by debt. This is the same as saying, “silver doesn’t have any
counter-party risk.” The counter-party risk in most financial assets is
the massive debt. Here is a chart comparing a (1 oz) silver coin versus
the U.S. Retirement Market:
The economic energy value of a physical one ounce silver coin is stored in
it, whereas the value of the U.S. Retirement Market is based on a massive
amount of ENERGY DEBT. Unfortunately, we will not have the cheap and
available energy supply in the future to pay back this ENERGY DEBT.
Thus, the collapse of financial assets will occur as the value of gold and
silver rise to unimaginable levels. Why? Because gold and silver
will be the only few liquid stores of economic energy in the entire market.
I conclusion, I don’t know what the Dow Jones-Silver ratio will fall
to. However, I can tell you it will likely fall lower than the 25/1
ratio set in 1980.
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