E Hi Yo Silver! Sort Of …

In January, 1980 silver peaked at close to $50.00 per ounce and gold hit a high point of approximately $850.00 per ounce. Thirty-one years later, in 2011, both metals again reached lofty levels.

For gold, the new high point was $1900.00 per ounce.  For silver, the number was $50.00 per ounce; again.

Six years later, as of this writing, gold is priced at $1260.00 per ounce. Silver is at $17.00 per ounce and change.

Over the entire thirty-seven year period, gold is forty-eight percent higher than its January, 1980 peak price; whereas, silver is sixty-six percent lower.  

And this ‘underperformance’ of silver (relative to gold) is not limited to any isolated, short-term time frame.

The US Federal Reserve Bank was established in 1913.  At that time the US dollar was convertible into gold at $20.67 per ounce. Concurrently, and in similar fashion, the US dollar was convertible into silver at $1.29 per ounce. The seemingly odd number was based on the silver content of .77 ounces in a US silver dollar ($1.29 x .77 ounces = $1.00). 

Just over one hundred years later, gold’s value as measured in continually depreciating US dollars is up sixty times ($1260/oz divided by $20.67/oz = 60). Silver’s value, as measured in the same depreciating US  dollars, is up only thirteen times ($17.00/oz divided by $1.29/oz = 13).

The US dollar has lost ninety-eight percent of its purchasing power since 1913. In other words, it takes (generally speaking) fifty times as many paper dollars today to purchase comparable amounts of similar goods and services you could have purchased in 1913. The sixty fold increase in gold’s US dollar price compensates quite well for the decline in US dollar purchasing power. The thirteen fold increase in silver’s US dollar price clearly does not.  

All of this seems inconsistent with the hype associated with silver re: its perceived role as a monetary hedge, the effects of inflation, and its relationship to gold (the gold/silver ratio, etc.)