Can Silver And Stocks Continue Higher Together?

February 27, 2014

According to most students of the historical value of silver, the lowest inflation adjusted price of the metal occurred at around 4 dollars in the early 1990s- a price that silver basically stayed within one dollar of for the next ten years. As a percentage of global investable wealth, the world’s silver represented something less than one tenth of 1 percent by the year 2000, due in large part to decades of silver deficits that had drained repositories of above-ground stockpiles. When silver finally began to decisively turn higher around 2003, it did so with most conventional stock markets around the world. Silver would continue to move higher with the stock market until 2007 (even while silver vastly outperformed equities during this time frame.)

For those who know their history, the only other time that silver had been worth as little as it was in the 1990s (relatively speaking), was way back during the depths of the Great Depression, in 1932, when the private market for silver (as opposed to the government support price) fell all the way to 26 cents. If you could have purchased silver at this low price, it was one of the greatest investments of the next 48 years, until the blow-off peak in 1980. However, I have to concede that many conventional stock markets also were not a bad place to have parked some cash during that same period. During many of the years from the early 1930s to 1980, stocks moved higher with silver—even as silver was the better investment.

So to answer my own question, and as I have mentioned before, inflation is the policy goal of central planners- and your job as a saver is to find ways to benefit from this modern phenomenon of near-relentless asset-inflation.  Stocks can benefit from inflation. But I think you know why I prefer silver as the ultimate inflation hedge.

Silver Historically Still Undervalued

It is also instructive to remember that once silver established its lows in the early 1930s, that the price actually increased nearly 200 times over the next 48 years. A similar price move in silver, starting with a low of around 4 dollars, would see silver at almost 800 dollars an ounce, at least over the course of the next couple of decades.

Other historians of silver, most notably Roy Jastram, author of Silver—The Restless Metal, and someone who greatly influenced my own thinking on this subject, likewise noted how much cheaper silver was in the 20th century than at any earlier time. According to Jastram’s work evaluating the purchase price of silver to a basket of other commodities, the silver price would need to reach well over 500 dollars an ounce in 2013 terms to equal its value from before the 19th century. (Jastram’s work was published nearly 40 years ago, and so the 500 dollar calculation was my extrapolation of his work.) Jastram and other monetary scholars would also point out that silver’s price around the world was often only one tenth the value of gold, even as European authorities later settled on the well known 16 to 1 ratio of silver to gold ounces by the 18th century. Either way, silver is much cheaper today relative to gold than it was before the 20th century, since it takes nearly 65 ounces of silver to buy one gold ounce.

Silver Mistakenly Priced As Abundant

Thinking about silver in relationship to gold is not the only way to understand the value of the white metal. If we think about how much oil goes into mining a new silver ounce today, in 2014, we have to assume that with all of the new equipment, the earthmovers, etc. that are now needed to dig deeper to extract the white metal, that it simply requires more oil to get an ounce of silver out of the ground now than in the past. Another useful statistic in this regard is the ore grade of most new silver deposits. As recently as 50 years ago, one could expect nearly 40 ounces of silver per ton of rock mined. Today, you are lucky if you can extract 5 or 6 ounces from that same ton of rock. As with other scarce minerals, you might be wrong to assume an ever-increasing ability to mine silver, even as prices increase. You may or may not be a believer in resource scarcity, but it certainly looks as though we live in a finite world, one where believing that silver mine supply increases can continue at the 4 or 5% clip of recent years may be unrealistic. Many in the gold space already comment on the reality of peak gold—which means that gold mine supply has been an increasingly difficult thing to increase. Might peak silver be in our future?

The price movement so far this year may or not be the beginning of the moonshot so many of us know is possible for this metal, and yet when you think about how cheap, under owned, and rare silver is, it’s hard not to be excited about the prospects for this restless metal.


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Ryan Jordan currently teaches U.S history at the University of San Diego. He has previously taught at UC San Diego, Lafayette College, and Princeton University, where he received a Ph.D in 2004. His book, "Silver- The People's Metal," published in 2012, recounts the past, present, and future of the silver market.  Visit Ryan's blog:

The melting point for silver is 961.93 °C - 1235.08 °K