$1,000/oz For Silver (Today): A Starting Point
by Jeff Nielson, Bullion Bulls Canada
Regular readers are well aware of an unresolved problem/issue which has permeated these commentaries for (especially) the past three years: the lack of any rational or objective means for pricing assets, most notably precious metals themselves. There are two enormous obstacles facing any analyst, in attempting to resolve this issue.
First of all; our economies are now operated with currencies which are not only worthless, but are absurdly fraudulent and worthless. With all asset prices denominated in one form or other of this worthless paper; this makes the absolute price for all hard assets “infinity” – with no means of differentiating between asset classes.
Compounding this enormous practical difficulty; the relative price of assets (in relation to each other) has also been skewed well beyond the slightest connection with “reality” (i.e. the economic fundamentals particular to each asset class) through endless, systemic, market manipulation. Previous commentaries have frequently noted that “we no longer have markets”, just rigged casinos. Thus the ridiculous prices generated through this systemic fraud have no relevance or legitimacy whatsoever.
Boiled down; the conundrum facing us in attempting to estimate (current) rational prices for assets is two-fold. Not only do we lack any obvious starting point for where to begin this process; we have no visible parameters to guide us in how we begin this process. How do you begin to estimate rational “prices”, in a totally fraudulent system, denominated in worthless currencies?
Enter Rob Kirby. In a recent interview for Sprott Money News; Mr. Kirby was in fact asked this specific question: how do we engage in the relative pricing of assets, with asset prices “skewed so severely through manipulation”? Here was his response:
I take the last 3,000 years, roughly. I put it on a yardstick. I ask myself for the greatest amount of that yardstick, what served as money? If you take the last 3,000 years and you put it on a yardstick, for about 32 inches of that yardstick somewhere between 40 and 60 ounces of silver was a solid upper middle class wage.
My question back to you is tell me exactly what you consider to be a solid upper middle class wage today? If you’re like me, you’re going to probably say that it’s around $50 to $60 thousand a year. Some might have a different number. I’m just going to take $50,000 a year, and I’m going to divide that by 40 ounces of silver…[it’s] more than $1,000 an ounce in today’s dollars. [emphasis mine]
Kirby’s response is ingenious, in that it addresses both how and where to begin in the relative pricing of assets, and he supplies us with an objective metric to use in beginning this process: the “average wage”. While critics can quibble, slightly, with the specific metrics he used in this calculation; the methodology itself is unquestionably sound.
The “average wage” is an objectively definable concept. The workers earning that average wage must be paid. Thus we can use that average wage to come up with a price for money – real money (i.e. silver and/or gold). $1,000/ounce for silver is a “starting point” (as noted in the title) in two respects.
First of all; Rob Kirby’s estimate of $1,000/oz for silver as a rational price today allows us to then price other assets in relation to this objective reference point. Obviously the first “price” we would calculate once we have a legitimate price for silver is the price for gold.
Referring to Kirby’s historical “yardstick”; for nearly all of our history (prior to the last 100+ years of extreme price manipulation) the price of silver existed at roughly a 15:1 ratio versus the price of gold. The reason for this relatively constant price ratio is that it accurately reflected the supply ratio of these two metals.
Silver exists at roughly a 17:1 ratio versus gold in the Earth’s crust. With the two metals having roughly similar aesthetic appeal (silver is actually the more brilliant of the two metals); it was only logical/natural that the price ratio would parallel the supply ratio. With silver priced at $1,000/ounce today; that directly implies a rational price today of $15,000/oz for gold.
Once we have rational prices for our (real) money; we are now in a much better position to “price” all other assets (relative to each other), because we’re no longer denominating these estimates in the worthless paper of the bankers. It’s beyond the scope of this analysis to come up with “historical” prices (price ratios) for other commodities, other hard assets (such as real estate), and asset prices for the plethora of goods produced in the global economy.
However, it is certainly not beyond the scope/means of our governments (and the various businesses in these different sectors) to engage in this re-pricing exercise by referring – whenever and wherever possible – to “historic” prices, which existed prior to the One Bank turning our markets into merely one of the “rackets” in its crime syndicate.
While the fundamentals for different classes of assets can (and do) change over time; historic prices for various asset classes can be modified, to reflect these changing fundamentals. Again, this is a process which can be done objectively, assuming that such analysis is based upon legitimate data. Indeed, it is changing fundamentals which is the second reason why a $1,000/oz price for silver (today) is merely a starting point.
The fundamentals of silver as a commodity have changed enormously, versus the historical “norm” referred to previously. Indeed, the dramatic change in silver’s economic fundamentals is a direct result of (in particular) the last 50+ years of systemic price manipulation. Specifically, while the supply of silver versus gold in the Earth’s crust is a constant; the quantities (and ratios) of these two metals above ground is not.
Global stockpiles of silver in relation to gold have plunged radically, as detailed in the analysis of the esteemed Ted Butler. By Mr. Butler’s own, best estimates; more than 80% of the world’s silver was literally “consumed” over this period of time, a direct product of the six-hundred year low in the price of silver (in real dollars).
As has been explained previously; under-pricing anything induces over-consumption, our natural reaction to anything which is (relatively) “on sale”. But not only did the extreme/ruthless price-suppression lead to the dramatic over-consumption of silver, such extreme under-pricing enormously discouraged industrial recycling, while decimating the global silver-mining industry – further under-cutting supply.
A vast array of consumer and industrial products using silver (in various amounts) sprang into our lives, given that silver, in metallurgical terms, has greater usefulness/versatility than any other metal. Furthermore, because of its superlative metallurgical properties; silver is often only required in small or even trace amounts.
In such quantities; it was not (and is not) economically viable to attempt to recover the silver from these products (as they are used-up and discarded), and so in this manner, global stockpiles have literally been consumed – as demonstrated in a chart very familiar to regular readers.
We know that global inventories of silver plummeted by roughly 90%, between 1990 – 2005 (reflecting the absolute trough in the price of silver). What we don’t know is how much further those inventories have dwindled since 2005, because it was at that point that the banksters began radically falsifying inventory data, in conjunction with their two, ultimate tools of precious metals fraud: the so-called “bullion-ETF’s” – GLD and SLV.
This catastrophic devastation of global silver inventories (and stockpiles) means that the historic supply ratio of the two metals (as reflected in global stockpiles) no longer exists. The exact ratio is unknown (due to the falsification previously noted) but given the known decimation of those stockpiles; some analysts are suggesting that (above ground) the two metals exist in relatively equal quantities.
Critics of this commentary might argue that $1,000/oz for silver today is “not a realistic price”, and they would be partially right. Having arrived at an objective price for gold of $15,000/oz today based upon Rob Kirby’s original metrics (and silver’s historic fundamentals), and having established that silver is (literally) much “more precious” today; $1,000/oz is clearly too low to constitute a fair, current price for silver.
A price of $15,000/oz for gold suggests a (current) price for silver at least in the vicinity of $5,000/oz, if not higher. For skeptics who find talk of such numbers to be hyperbolic, despite the objective foundation for those numbers; never forget that we’re pricing these metals in worthless paper.
As previously explained; denominated in these worthless currencies, the absolute price for all these assets is infinite. In relation to that reality; pricing gold/silver (today) in mere $1,000’s can only be regarded as the most-conservative of calculations.
No matter how radically the One Bank has falsified our economic reality in this Wonderland Matrix of fraud and propaganda; through human ingenuity we can restore rationality and legitimacy to our markets, and the prices generated by (bona fide) buyers/sellers in those markets. And it all starts (yet again) with silver and gold.