Silver undervalued or gold overvalued?

[CurbsideProphet]

Take a look at what's going on with the Swiss Franc, which has been at historic levels compared to the USD and Euro.  They are purposely devaluing CHD.  It should be noted that if you chart gold vs CHD, you will see that gold has not appreciated like it has versus other currencies.

The euro traded at 1.1092 Swiss francs, a gain of 2.1% from Tuesday, after the SNB announced it would target its official interest rate as close to zero as possible. It also said it would boost Swiss franc liquidity in the money markets, a move strategists said was a form of quantitative easing.

The SNB, which said a “massively overvalued” franc was threatening the economy, also left open the option of physical intervention. The SNB said it was watching foreign exchange markets closely and would take further actions if needed.

Gold is essentially the last monetary proxy which has not been overtly tampered with (it is not under any particular government's jurisdiction and, with the exception of guys like GS and Soros, no goverments really have much interest in its value - so at least government intervention is not an issue).  You can make a similar argument for silver. 

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[foggyb]

What you are saying is what 99.9% of people believe. Hence, it is too late now, and the opposite will happen. I will bet 5 BTC with you that Silver will drop below 30 $ by Jan 12 and another 5 BTC for a drop below 10 $ somewhere between 2012 and 2015.

And by the way, you do not show the full (and most important) chart history: The previous Silver high of 50 $ in 1980. This means that Silver did not gain at all vs. this high, and when accounting for inflation, Silver today is down massively vs. 30 years ago..[/color]

In 1980 US minimum wage was about $3.10/hour on average (in 1980 dollars). If silver rose to $50/ounce then, it would cost two days wages to buy an ounce of silver. If minimum wage today is set at $7.25/hour, then a silver spike equivalent to 1980 would bring silver to $116/ounce in 2011 dollars.

Are you telling us that silver has LOST value against the US dollar, after 30 years of non-stop printing of money?

Or is silver under-valued?

You decide.

[S3052]

Great comment. They more pushback I get the more convinced I get that I am on the right side. And this has guided me and subscribers very well through the bitcoin swings, but also myself throughout the last decade of financial markets, using only technical patterns.

[foggyb]

Great answer.  

But I would like to hear your response.

The USD goes to shit in 30 years, and silver follows?

Has silver become more abundant?

Have we found replacements for silver in industry?

Why are you so bearish on silver?

"Don't hoard your silver coins, it will never be profitable." US President Johnson, 1965

He says this precisely because silver bullion was becoming too valuable to describe a shit US dollar, as the mint was in the process of changing to copper-clad coins.

http://news.google.com/newspapers?id=3P1OAAAAIBAJ&sjid=XgEEAAAAIBAJ&pg=4613,3314165&dq=don-t+hoard+your+silver&hl=en

Richard M Nixon on inflation, 1972: "Gas will NEVER a dollar a gallon.....Bread will NEVER be a dollar a loaf ! "

[S3052]

Great answer.  

But I would like to hear your response.

The USD goes to shit in 30 years, and silver follows?

Has silver become more abundant?

Have we found replacements for silver in industry?

Why are you so bearish on silver?

"Don't hoard your silver coins, it will never be profitable." US President Johnson, 1965

He says this precisely because silver bullion was becoming too valuable to describe a shit US dollar, as the mint was in the process of changing to copper-clad coins.

http://news.google.com/newspapers?id=3P1OAAAAIBAJ&sjid=XgEEAAAAIBAJ&pg=4613,3314165&dq=don-t+hoard+your+silver&hl=en

Richard M Nixon on inflation, 1972: "Gas will NEVER a dollar a gallon.....Bread will NEVER be a dollar a loaf ! "

Great discussion. Sorry for not being more detailed in my answers, I am working on a few important things. But o.k. here is my explanation attempt.
I am not really good at fundamentals, hence, my explanation might sound layman-ish. I am much better at charting but can't do an analysis now.
The main reason why I am bearish Silver is:

Silver prices have skyrocketed this year mainly behind speculation, which is not justified by the industrial value. This speculation is largely via leveraged tools, and in the current and more severe upcoming crash/crisis, people need to sell stuff to pay their bills, and this includes leveraged Silver derivatives. And Silver is not alone, as all assets will plummet in the midst of this historic crash.

And even if the current price seem to be justifies because of industrial use, this will also change as the economy falters and Silver demand shrinks..

Overall, midterm, over the next couple of years, this will drag Silver down.
Longterm I am relatively bullish Silver. It will be the first indicator that the crash is over. It is wise to keep some physical Silver even if it goes doen in dollar terms. If Silver rises again strongly from low single digits, then a new bull market starts. But based on my longterm time studies, this will not be before 2014.

[S3052]

And here is an example on how I see Gold prices.
http://chart.ly/hi5cdqh

5 completed Elliott waves. Perhaps a couple of $ more upside, then big correction.

Silver also completed 5 Waves up, but started its decline already in April 2011, again a leading indicator, and hence leading Gold as well.

[foggyb]

Fair enough. Your analysis seems reasonable. (I'm no expert).

There are a couple of factors that I believe could play in factor in changing the game.

1. Shortages. There is a lot of investment demand right now. In the USA retail silver sales are through the roof.



2. Large players coming to market. China, for example. Their government are bullish on silver.



3. Economic crash could result in a mining and exploration crunch. With silver already in a tight situation, this would be a very bullish event. All of the world's annual silver mining production is consumed in some way.



As we can see in 2008, industrial demand was about the same as the previous year and dropped about 20% the following year. The silver price dropped 50% a year early, in anticipation of the this. However the following year, 2010, silver rebounded very strongly, and although industrial demand did not increase from 2007 levels, total consumption (and price) rose sharply in part due to investment.



To me, this graph is misleading, as investment and industrial are not the only two categories. But it does tell a tale of a short-term decrease in the significance (but not necessarily the physical amount) of industrial consumption, yet some of that same silver is lost forever in the processes of industry.

[The_JMiner]

Fully disagree and we can at least agree to disagree :-)
What you are saying is what 99.9% of people believe. Hence, it is too late now, and the opposite will happen. I will bet 5 BTC with you that Silver will drop below 30 $ by Jan 12 and another 5 BTC for a drop below 10 $ somewhere between 2012 and 2015.

And by the way, you do not show the full (and most important) chart history: The previous Silver high of 50 $ in 1980. This means that Silver did not gain at all vs. this high, and when accounting for inflation, Silver today is down massively vs. 30 years ago..

I am glad we can discuss this without the usual shit talking of this forum.
I do not see the big deal about the 50$ run up in 1980 since it was being manipulated and that is why i did not see the big deal. Also I do not think such a thing can happen again especially with the raising capital needed to hold a silver position. 

Silver prices have skyrocketed this year mainly behind speculation, which is not justified by the industrial value. This speculation is largely via leveraged tools, and in the current and more severe upcoming crash/crisis, people need to sell stuff to pay their bills, and this includes leveraged Silver derivatives. And Silver is not alone, as all assets will plummet in the midst of this historic crash.

I agree with you in the sense that we can go into a dip but I do not agree on how low you speculate. Because people are actually starting to accept silver as payment for goods (instead of dollars!!). Maybe not for paying bills but I have been to a number of privately owned grocery stores that accept silver.

And even if the current price seem to be justifies because of industrial use, this will also change as the economy falters and Silver demand shrinks..

Agreed but not to single digits IMO

Overall, midterm, over the next couple of years, this will drag Silver down.
Longterm I am relatively bullish Silver. It will be the first indicator that the crash is over. It is wise to keep some physical Silver even if it goes doen in dollar terms. If Silver rises again strongly from low single digits, then a new bull market starts. But based on my longterm time studies, this will not be before 2014.[/color]

My only concern is I think you underestimate how "crazy" people can get if they do not feel safe with cash (fiat) (paper) w/e you want to call it and may start to throw their millions into gold/silver. (millionaires silver , billionaires gold lol ) That is why I feel silver even with weak demand from industry might continue going high even when we go into this second recession (depression) [another thing we both agree will happen]

[DonnyCMU]

http://en.wikipedia.org/wiki/Silver_Thursday

http://en.wikipedia.org/wiki/Nelson_Bunker_Hunt

http://en.wikipedia.org/wiki/Cornering_the_market#1970s:_The_Hunt_brothers_and_the_silver_market

http://en.wikipedia.org/wiki/Silver_as_an_investment

I bought at $15 and had to sell at $7

Never again!

Wow. this goes way back.. So you buy in at $15... ride it all the way to over $40 - almost 300% gain. But when the thing crashed, you couldn't get out in time and got out when it bottomed at $7?? Didn't the crash took several days?

[foggyb]

I bought at $15 and had to sell at $7

Never again!



Wow. this goes way back.. So you buy in at $15... ride it all the way to over $40 - almost 300% gain. But when the thing crashed, you couldn't get out in time and got out when it bottomed at $7?? Didn't the crash took several days?

He probably had to sell all his 3 ounces.

[Smalleyster]

http://en.wikipedia.org/wiki/Silver_Thursday

http://en.wikipedia.org/wiki/Nelson_Bunker_Hunt

http://en.wikipedia.org/wiki/Cornering_the_market#1970s:_The_Hunt_brothers_and_the_silver_market

http://en.wikipedia.org/wiki/Silver_as_an_investment

I bought at $15 and had to sell at $7

Never again!

Wow. this goes way back.. So you buy in at $15... ride it all the way to over $40 - almost 300% gain. But when the thing crashed, you couldn't get out in time and got out when it bottomed at $7?? Didn't the crash took several days?

LOL! I was feeling big and bold and was going to ride it out a little more and planned to buy a new car. Counted them chickens long before they hatched. Back then in the Bahamas we tracked the price of stuff in the newspaper. IIRC it was 10 in the paper but by the time I got the silver out of the safety deposit and to the dealer he offered me 7 and I sold it all.

[Smalleyster]

I bought at $15 and had to sell at $7

Never again!

Wow. this goes way back.. So you buy in at $15... ride it all the way to over $40 - almost 300% gain. But when the thing crashed, you couldn't get out in time and got out when it bottomed at $7?? Didn't the crash took several days?

He probably had to sell all his 3 ounces.

"Treat people nice on your way up. You will see the same faces on your way down."

[foggyb]

"Treat people nice on your way up. You will see the same faces on your way down."

Sorry, I'm abrasive by nature.

Why sell your silver at $7 when you bought at $15? That's not a fault of the silver market. And it certainly wasn't the Hunt's fault. The blame lies with the US government for the Hunt debacle. The same government that is now backing the dollar that everyone holds so dear. The USD will be shit soon, and its been a long time coming.

[foggyb]

I do not see the big deal about the 50$ run up in 1980 since it was being manipulated and that is why i did not see the big deal.

There is only so much silver to go around.  Free market structure allowed the price to go to $50. Market manipulation by the US Government is what cause the price to collapse. If they had not intervened, I suspect the price would be at around $100 today.

Also I do not think such a thing can happen again especially with the raising capital needed to hold a silver position.

That's way off. Silver is one the smallest commodity markets on the planet. Annual world silver is 800m or so ounces. Times $40 an ounce = 32bn dollars. Bill Gates could buy up over a year's supply of silver. Lets compare that to the crude oil market. With the price of oil at 92$/barrel, and daily US consumption at 14m barrels a day, Bill Gates can only buy about 25 days of oil production for USA ONLY with that same 32bn dollars!

Or, if you prefer, if 1 million people invest just $32,000, they could buy up ALL of a years silver production. Which of course CAN"T BE DONE because you can't just go out and buy 800,000,000 ounces of silver, it would take 6 months at least. The price would go to the moon. $1000/ounce, easily. It happened with palladium, which started under $100 and reached an all-time high of nearly $1100/ounce. Mostly due to shortages.

[bitcola]

What's the easiest way to buy Palladium? I know it is a favoured 3rd PM.

[The_JMiner]

There is only so much silver to go around.  Free market structure allowed the price to go to $50. Market manipulation by the US Government is what cause the price to collapse. If they had not intervened, I suspect the price would be at around $100 today.

Yea I see what you mean that manipulation was the cause for it to come down not up.

Also I do not think such a thing can happen again especially with the raising capital needed to hold a silver position.

That's way off. Silver is one the smallest commodity markets on the planet. Annual world silver is 800m or so ounces. Times $40 an ounce = 32bn dollars. Bill Gates could buy up over a year's supply of silver. Lets compare that to the crude oil market. With the price of oil at 92$/barrel, and daily US consumption at 14m barrels a day, Bill Gates can only buy about 25 days of oil production for USA ONLY with that same 32bn dollars!

Or, if you prefer, if 1 million people invest just $32,000, they could buy up ALL of a years silver production. Which of course CAN"T BE DONE because you can't just go out and buy 800,000,000 ounces of silver, it would take 6 months at least. The price would go to the moon. $1000/ounce, easily. It happened with palladium, which started under $100 and reached an all-time high of nearly $1100/ounce. Mostly due to shortages.

My opinion was that I do not believe it could be manipulated to go low again (not high). I agree the market for silver is extremely tight. Great input though gives me a new perspective.

[foggyb]

My opinion was that I do not believe it could be manipulated to go low again (not high). I agree the market for silver is extremely tight. Great input though gives me a new perspective.

Oh, I misunderstood then. 

[S3052]

Big intraday turn down today. Looks like the start of the Silver desaster.

[foggyb]

There are people waiting to buy.

I know I am.

[netrin]

When I look at the metals and oil charts I am struck by the huge correction in 2008. Whether crude, platinum, or silver, they all drop by about half their previous price. Except gold.