We all know silver is volatile. When gold rallies, silver usually rallies faster and farther, particularly after the rally has been well established.

Volatility is not a reason to avoid silver. Instead, now is a time to continue stacking. Yes, silver almost certainly will correct many times, but examine the big picture.

Over the past 50 years prices for stocks, silver, gold, crude oil, health care, and presidential elections have increased exponentially, mainly due to massive increases in debt (see graph below) and devaluations of currencies. Expect exponential price increases to continue.

Over 50 years the Dow Jones Industrial Average has averaged about 700 times larger than the price of silver. Examine the log-scale graph (below) of 700 times the price of silver plus the DJIA.

  • Prices have moved higher exponentially.
  • You can see the silver bubble in 1980.
  • You can see the small deviation from trend in 2011 caused by the silver rally to nearly $50. It was not a bubble.
  • Another silver bubble will probably occur, but we have not seen a bubble in silver since 1980.

    • What about the DJIA?  Examine the 28 year chart of the DJIA – log scale.

  • The DJIA has moved exponentially higher for three decades.
  • The red ovals indicate “danger zones” where the DJIA rallied too far and too fast, corrected below its exponential trend-line, and then fell by 40% or more.
  • The DJIA peaked in May 2015 and has only fallen slightly since then. Expect a larger correction.

    • Examine the silver (times 700) to DJIA ratio over the past 30 years. This excludes the 1980 bubble in which the ratio peaked many times higher than the 2011 ratio.

  • The 30 year ratio shows long term trends of investor preference for paper assets, such as the DJIA, versus hard assets such as silver.
  • Silver prices and the ratio hit a multi-decade low in November 2001, as indicated by a green oval.
  • The ratio is only slightly higher in 2016, as indicated by the other green oval.
  • There is considerable room for the ratio to increase, which would probably involve a somewhat lower DJIA and a much higher price of silver.
    • Print Friendly, PDF & Email

    Related Posts