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There are many predictions for the price of silver. Some say it will crash to nearly $20/ozt., and others proclaim $100/ozt. by the end of 2012. The problem is that some predictions are only wishful thinking, others are obvious disinformation designed to scare investors away from silver, and many are not grounded in hard data and clear analysis. Other analyses are excellent, but both the processes and analyses are difficult to understand. Is there an objective and rational method to project a future silver price that will make sense to most people? Yes, there is [- and here it is!] Words: 1071
So says GE Christenson (www.DeviantInvestor.com) in edited excerpts from his original article entitled $100 Silver! Yes, But When? Also read: Gold Projected to Reach $4,000/ozt. Sometime Between Late 2015 & Mid 2017! Here’s My Rationale
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), may have edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
The U.S. government will continue to spend in excess of $1 Trillion per year more than it collects in revenue, as it has done for the previous four years, and as the government budget projects for many more years. Our financial world continues on its current path of deficit spending, debt monetization, Quantitative Easing (QE), weaker currencies, war and welfare, ballooning debts, and business as usual. A massive and devastating financial and economic melt-down does NOT occur in the next four to six years. If such a melt-down occurs, the price of silver could skyrocket during hyperinflation or stagnate under a deflationary depression scenario.
I think you would agree that the above assumptions are both simple and rather obvious….Most people also agree that the U.S. government national debt is huge and will grow much larger during the next decade. Examine the following graph:
National debt is plotted on the left axis – yes, it was larger than $16 Trillion as of September 30, 2012. Silver is plotted on the right axis. The data covers an 11 year span from September 2001 through September 2012. This period includes the time after the stock market crash of 2000, the game-changing events of 9-11, the real estate crash, and the new bull market in commodities. Each month represents one data point. Note the similarity between the two trends. The statistical measure R-Squared for this 11 year period of monthly data is 0.838 – quite high. R-Squared increases to about 0.90 if national debt is correlated to the monthly price of silver after it has been smoothed with the 9 month moving average.
This expansion in the national debt is a simple proxy for expansion of the money supply and the devaluation of the dollar. The exponential growth rate for the national debt averaged over this period is 9.7% compounded annually, while the rate averaged over the last five years is 12.3%. The exponential growth rate for silver is a bit larger – about 20% per year compounded annually. I attribute this larger rate, in excess of 12.3%, to the realization that silver is a competing currency, mining supply is growing slowly, most governments are aggressively “printing money,” industrial demand is increasing, and some investors are actively buying silver.
In short, demand is increasing while the realization that silver is still an undervalued investment and cannot be “printed” at will (like dollars and euros) has reached the awareness of individual investors. I believe it is very likely that national debt and the price of silver will continue their 11 year exponential growth trend.
Since silver correlates relatively closely with national debt, we can use national debt as a clear, objective, and believable proxy to model the future price of silver. Extend national debt and silver prices forward for the next six years based on the exponential increase from the last five years, and the result is the following table. Bracket silver prices, high and low, based on past annual volatility of roughly +60% and -35%. You can see from the graph that silver prices are very erratic – silver rallies too far and too fast, and then crashes to absurdly low levels. These stunning rallies and crashes have happened for at least 35 years and probably will continue throughout this decade.
Whether or not prices and crashes are manipulated, and there seems to be credible evidence to indicate such, the “big picture” view is that silver has rallied from about $4 to nearly $50/ozt., crashed back to about $25/ozt., and is set to rally to well over $100 in the next few years. The week-to-week movements will become even more extreme so focus on the long-term trend to reduce anxiety and fear.
As you can see in the above table, the projection for silver prices indicates that silver could reach $100/ozt. as soon as late 2015, with a theoretical projected price of $100/ozt. about 2017. The price of silver is about $32.00/ozt. as of November 1, 2012.
The important realization is that $100/ozt. silver is just a matter of time – say three to five more years – depending on the level of QE “money printing,” inflationary expectations, dollar devaluations, fiscal insanity, government deficit spending, wars, and welfare. We have been warned! [Read: Take Note: Don’t Say You Weren’t Forewarned! and Commentary on QE3 Exclaims: “We Have Been Warned!”]
Conclusion
We may be skeptical of price projections for silver, but projections for national debt are quite believable and, since the correlation is very close (0.838), future silver prices can be projected, assuming continuing deficit spending, QE, and other macroeconomic influences.
A dollar crash or an unexpected bout of congressional fiscal responsibility could accelerate or delay the date silver trades at $100, but the projection is reasonable and sensible.
Silver increased from $4.01/ozt. in November, 2001 to over $48/ozt. in April 2011. A silver price of $48/ozt. seemed nearly impossible in 2001, yet it happened. An increase in price from about $32/ozt. in October 2012 to $100/ozt. by 2015 – 2016 seems much easier to believe, especially after Bernanke’s recent announcement of QE4-Ever.
* http://www.deviantinvestor.com/1670/100-silver-yes-but-when/ (If you would like to be updated on new blog posts, please subscribe to my RSS Feed or e-mail. GE Christenson aka Deviant Investor)
Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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