On a quiet day here in the States – with nearly all markets closed for President’s Day – I want to take advantage of the “relative peace” to hammer home one of the MOST IMPORTANT INVESTMENT THEMES OF OUR LIFETIME.
I spend 99% of my time writing about the need to think defensively, i.e. not of increasing one’s wealth but protecting it – although owning PHYSICAL gold and silver will certainly achieve both targets. However, I still have two decades of financial markets in my blood, and thus it is hard to suppress my excitement about the inevitable silver breakout to all-time highs, in what will historically be viewed as the ULTIMATE TRIPLE-TOP BREAKOUT.
Gold may be the “linchpin” of the global financial system, but silver is the hare-trigger due to its equally established monetary history, tiny market size, and lack of above-ground inventory. That is why PAPER silver has been so maniacally suppressed since the gold standard was abandoned in 1971, the systemic “Achilles Heel” that will no doubt “break the Cartel’s back.” Not only is silver among the scarcest elements on Earth – prompting the U.S. Geological Service (USGS) to recently predict it would be the first extinct element – but investment and industrial demand are both growing exponentially.
Below is a table depicting historical silver prices dating back 700 years, the first 600 of which constituted the era of global silver monetization. At some point during this period, nearly every nation utilized silver as LEGAL TENDER – including the U.S. – establishing it as money across myriad nations, continents, and cultures.
Before the U.S. “gold rush” of the mid-1800s, silver had spent a century trading in the $50-$100/oz range, after adjusting for pre-1998 inflation. This chart concludes in 1998 (ironically, with Warren Buffet’s fabled 140-ounce purchase, since “prematurely sold” by his words), but one can clearly see the $10-$50/oz trading range from roughly 1900 until the gold standard was abandoned in 1971, a MASSIVE RESISTANE LEVEL on the verge of being breached.
Also notice the gold/silver ratio, highlighted in gold. As you can see, it hovered around 15:1 for close to 500 years, a monetary construct based on the amount of silver and gold actually produced. In other words, for centuries the ratio of silver ounces produced to gold ounces produced was close to 15:1, although TODAY it has fallen to 9:1 due to silver’s increasing relative scarcity. In the early 1900s, silver prices plummeted from the $50-$100/oz range they had traded at for the prior century when major silver discoveries occurred in Nevada and Idaho, enabling inventories to soar until the mid-20th century.
Unfortunately, that’s when “peak silver” occurred, yielding not only depletion of essentially ALL the world’s silver inventories in a 60-year period (to less than one billion ounces of above ground inventory today), but industrial demand exploded due to the white metal’s unique properties, making it the second most widely used commodity (after crude oil) on earth!
When the Bretton Woods era officially ended in August 1971, the gold/silver ratio counter-intuitively rose from the 20-30 range of the late 1960s to 100 in 1991. Given the aforementioned trend in global silver inventories, and soaring monetary demand following the breakdown of the London Gold Pool in 1968 and rising inflation fears, it is difficult to surmise any other reason for a rising gold/silver ratio than Cartel manipulation, demonstrating just how long it’s been ongoing, and how pervasively.
Since the cyclical PM bear market ended in 1999, the gold/silver ratio has averaged closer to 50:1 (where it stands today), but that KEY ROUND NUMBER is starting to look A LOT like a long-term resistance level in the process of a BATTLE ROYALE with the Cartel. I believe this ratio will have difficulty rising significantly above 50:1 in the coming months, and at any time could plummet to the May 2011 low of 32, eventually targeting the 1980 low of 18 in the coming years, and potentially 5:1 when the Precious Metal mania peaks, and silver supply DISAPPEARS.
When writing of the impending “ULTIMATE TRIPLE TOP BREAKOUT,” I have always referred to the upcoming “third prong” of the MASSIVE, 32-YEAR “rounded bottom” formation forged by three decades of manipulation. I have NEVER seen such a powerfully bullish, long-term formation in my entire career – nothing even close – and given the “Perfect Storm” of supply and demand fundamentals, I can see why silver is the first to EVER have this appearance.
That said, if you go back to the major silver discoveries of Nevada and Idaho in the early 1900s, one can see the KEY ROUND NUMBER of $50/oz actually has resistance going back MORE THAN A CENTURY, creating not a 32-year triple top breakout but a 112-YEAR, QUADRUPLE TOP BREAKOUT! I’m no chartist, but something tells me the “upside target” of such a convincing breakout would easily top the inflation adjusted all-time high of roughly $800/ounce, circa 1500 AD.
Then again, this should be no surprise to long-term readers.
My gold price forecast is based on the OVERT money that has been printed since we abandoned the gold standard in 1971, at roughly $15,000-$20,000/ounce. An estimate, by the way, corroborated by the research of numerous others in the field, such as Jim Sinclair and Mike Maloney. Given that my gold:silver ratio target is between 5:1 and 15:1, my absolute silver target price is $1,000-$4,000/ounce (in TODAY’S DOLLARS, assuming no further MONEY PRINTING – LOL).
When silver was $800/ounce (in 1998 dollars) circa 1500 A.D. (the days of Hernan Cortez), Precious Metals were undisputedly the ONLY forms of universally recognized MONEY. Given the economic Armageddon I anticipate will engulf the entire civilized world this decade, plus an additional 6+ BILLION of global population fighting for an increasingly scarce silver resource, I believe my initial (pre-hyperinflation) price target makes a great deal of sense!