Is Silver Going to $100? Here’s What The Charts Scream!

Key Concepts

• Silver Price Path to $100: The central theme is exploring the possibility and mechanics of silver reaching $100 per ounce.
• Gold vs. Silver Performance: The analysis frequently compares the historical and current performance of gold and silver, noting silver's tendency to lag gold but ultimately outperform.
• Nominal vs. Logarithmic Charts: The use of both non-logarithmic (nominal) and logarithmic charts to analyze price movements over extended periods.
• Support and Resistance Levels: Identification of key price levels, such as $2,000 for gold and $50 for silver, acting as support or resistance.
• Currency Comparisons: Analysis of silver and gold prices in different currencies (Japanese Yen, Swiss Franc) to highlight relative value and potential.
• Dow/S&P 500 to Precious Metals Ratios: Examination of the relationship between stock market indices (Dow, S&P 500) and precious metals to gauge overvaluation or undervaluation.
• Gold-Silver Ratio (GSR): The ratio of gold prices to silver prices, used as an indicator of relative value and potential for silver to outperform.
• Supply Chain Issues and Premiums: Discussion of how supply chain disruptions (e.g., in London) can lead to increased premiums for physical silver.
• Short Squeezes and Volatility: The potential for rapid price increases due to short sellers being forced to cover their positions.
• Recency Bias: The tendency to overemphasize recent events and neglect historical patterns.
• Fiat Currency Devaluation: The underlying premise that precious metals gain value as fiat currencies lose purchasing power.
• Due Diligence and Trustworthy Dealers: Emphasis on education and finding reliable sources for precious metal investments.

Analysis of Silver's Path to $100

This discussion explores the potential for silver to reach $100 per ounce, building upon its current price (over $52 as of October 15th, around 10:30 AM Eastern Time). The analysis leverages historical data and comparative performance with gold to illustrate the underlying mechanics.

Gold's Recent Performance as a Precedent

• Breakout Above $2,000: Gold has recently broken through the $2,000 level, which had previously acted as a significant resistance. This level has now transitioned into support.
• Doubling in Price: Gold has effectively doubled its spot price, moving from around $2,000 to over $4,000 in a relatively short period. This serves as a benchmark for potential silver performance.
• Logarithmic Chart Insights: When viewed on a logarithmic chart, gold's historical movements, including significant rallies in the 1970s and 1980s, are presented as less alarming and demonstrate its capacity for sustained upward trends. The projection suggests this trend could extend into the 2030s.

Silver's Lagging but Promising Position

• Approaching Nominal High: Silver has surpassed its ancient nominal high of $50 and is now facing a "wall of worries" as analysts question its sustainability.
• Matching Gold's Performance: To simply match gold's recent doubling in price, silver would need to double nominally from its current level. This alone suggests a path to triple-digit silver prices.
• Outperformance Potential: Historically, silver tends to outperform gold. Therefore, matching gold's performance is considered a conservative baseline, with the potential for even greater gains when gold's own trajectory is considered.
• Launch Pad at $50: The $50 level is identified as a crucial support for silver, similar to $2,000 for gold. The current price action suggests it is holding, potentially serving as a launching point.
• Efforts to Suppress Price: Observations of price action, particularly during less liquid market hours (e.g., Hong Kong exchange), suggest persistent efforts to keep silver prices in check through short selling. However, the persistent upward fight-back indicates underlying strength.
• "God Candles" and Rapid Rallies: The expectation is that at some point, silver will experience rapid upward price movements, referred to as "God candles," potentially reaching $60-$70 even within the current year.

International Perspectives and Premiums

Japanese Yen Analysis

• Silver Price High in Yen: In Japan, silver rounds are already trading at their nominal 1980 high, around 11,600 yen per ounce, despite a 10% VAT. This implies a significant premium over spot prices.
• Gold's Performance in Yen: Gold in Japan has tripled in nominal yen terms since matching its 1980 high in 2020.
• Silver's Lag: Silver in Japan has not yet reached its nominal 1980 high.
• Potential for Tripling: Silver has the potential to triple from its current yen price just to match gold's performance.
• Stored Energy and Pinned Demand: This situation indicates significant stored energy and pent-up demand in Japan, with people willing to pay a substantial premium to acquire silver and exit the yen.
• Factors for High Premiums: The high premiums are attributed to a combination of factors:
  • Growing Awareness: Prominent figures like Bruce Aikimeizu, head of the Japanese Bullion Association, are encouraging younger generations to consider silver's upside potential.
  • Limited Inventory: Potentially low inventory levels at dealers.
  • High Demand: Strong local demand.

Swiss Franc Analysis

• Gold's Performance in Swiss Francs: Gold in Switzerland has nearly doubled from its breakout level of around 1,700 Swiss Francs, reaching almost 3,400.
• Silver's Position: Silver is still trading below its 1980 nominal high of 37 Swiss Francs, currently around 41.
• Four-Bagger Potential: To match gold's performance, silver would need to reach its 1980 high and then double again, implying a potential four-bagger (quadrupling) from current levels.
• High Demand in Switzerland: Anecdotal evidence suggests silver is in high demand in Switzerland, though not yet at extreme "obtanium" levels.

Stock Market vs. Precious Metals Ratios

Dow Jones Industrial Average vs. Gold

• Historical Cycles: The ratio of the Dow Jones Industrial Average to gold exhibits cyclical behavior, with periods of overshooting on both the upside and downside.
• Current Ratio: The current ratio is approximately 1125-1150.
• 2011 Low: In 2011, during a gold bull market, the ratio dropped to around 5.7, meaning 5.7 ounces of gold could buy one share of the Dow.
• Dow's Nominal Value: The Dow Jones Industrial Average is currently around 47,000 nominal.
• Projected Decline: The expectation is that the ratio will inevitably revert to the 2011 low and likely overshoot it, potentially reaching levels seen in 1980 when one ounce of gold could buy a significant portion of the Dow. This suggests a substantial decline in the Dow relative to gold.

S&P 500 vs. Silver

• Current Ratio: The S&P 500 is approximately 6700, and the ratio to silver is around 110 ounces of silver per S&P 500 share.
• 1980 Low: In 1980, the ratio reached a low of 2.25 ounces of silver per S&P 500 share.
• 2011 Low: In 2011, the ratio was around 25.
• Overvaluation: The current ratio is significantly above the 1929 bubble levels, indicating extreme overvaluation in the stock market relative to silver.
• Projected Decline: The chart's shape suggests a significant decline in the S&P 500 relative to silver, potentially overshooting the 2011 low.

Housing Prices vs. Silver

• Average US Housing Prices / Silver: The current ratio is approximately 13,271 ounces of silver to purchase an average US home.
• Median Housing Prices / Silver: The median is over 10,000 ounces.
• 2011 Low: The 2011 low for this ratio was just over 5,000 ounces, implying a doubling of purchasing power for silver holders if this level is reached.
• 1980 Low: The 1980 low was around 2,000 ounces, suggesting a potential six-fold increase in purchasing power for silver holders if this historical extreme is revisited.

Gold-Silver Ratio (GSR)

• Current Level: The GSR is currently piercing 80 and threatening to move into the 70s.
• Historical Norm: The "fat of the data" in the fiat financialized era suggests that levels around 70 or below are more normal.
• Recency Bias: The tendency to focus on recent extremes (high GSR) without considering historical periods of much lower ratios.
• Post-WWII Industrialization: The period after World War II saw significant industrialization, which was inflationary and led to increased prices for precious metals.
• Central Bank Demand: Central banks are buying significant amounts of gold, which can drive silver prices higher in relative value.
• Conservative Target: A return to the 2011 low of 30 for the GSR is considered a reasonable and conservative target.
• Underlying Value: A GSR of 78 is considered "pretty cheap," and future generations may regret not taking advantage of it.
• Calculation for $100 Silver: To match gold's current price with a GSR of 30, silver would need to reach $132. Given the current demand for gold, a decline in gold is not anticipated, thus supporting the $100+ silver target.

Potential for Short-Term "Moonshot" and Volatility

• Supply Chain Disruptions: Issues with refiners being backed up and difficulties in getting silver to London (e.g., LBMA) can create extreme shortages.
• Short Squeeze Scenario: A short squeeze could exacerbate price increases as short sellers are forced to buy back their positions, driving prices higher rapidly.
• Triple-Digit Silver by Q1: There is a possibility of silver threatening triple digits by the end of Q1.
• Michael Oliver's Perspective: Respected analyst Michael Oliver of MSA is a strong bull on silver, emphasizing the GSR and historical data, and has predicted triple-digit silver in Q1.
• High Volatility Expected: Significant volatility is anticipated in the silver market.

Advice for Investors

• Ground in Data and Math: Use charts and data to remove emotion and gain a long-term perspective.
• Education is Crucial: Understand what you are doing before investing.
• Shrewdness and Calmness: Be prepared for price swings and maintain composure.
• Long-Term Perspective: Silver prices could fluctuate significantly (e.g., $50-$100, then back to $70-$75, then to $150-$200+).
• Data as an Emotional Anchor: Use data to keep emotions in check.
• Historical Rhymes: Understand that past financial history often rhymes with future events.
• Reason for Buying: Invest in silver as a store of value against the devaluation of fiat currencies, particularly the US dollar, which has had its worst year on record against other fiat currencies.
• Trustworthy Dealers: Find dealers with good track records and credible reasoning.

Conclusion

The analysis strongly suggests a clear path for silver to reach $100 per ounce and beyond. This is supported by gold's recent strong performance, historical patterns of silver outperforming gold, international demand, and the overvaluation of stock markets relative to precious metals. While significant volatility is expected, a long-term perspective grounded in data and education is crucial for navigating this potentially lucrative market. The current GSR of 78 is seen as an attractive entry point, with historical precedents suggesting much lower ratios are achievable. The potential for supply chain disruptions to trigger short squeezes adds another layer of possibility for rapid price appreciation.