Jeff Lewis On Where Silver's Headed

Back in June we provided you with a list of our Top 5 Silver Commentators. The author of the following post featured high up on the list. Dr Jeff Lewis frequently writes accessible information on the price of silver bullion. I would recommend his articles to anyone considering investing in silver.

Friday's poor Nonfarm Payrolls data sent both gold and silver to recent highs, but it was the latter which shone the most. Days like these prompt many to ask just how high silver could climb to? As Dr Jeff Lewis points out there are various estimates which attempt to predict that magic number.

While he doesn’t provide us with his magic number, he reminds us of the fundamentals that will help to drive silver upwards to wherever it is headed. Unsurprisingly, many of these are the same as gold but are just as valid.

One of the most often asked questions by those interested in investing in silver pertains to not only how low, but how high silver’s price can go.

The range is anywhere from a paper price of zero, given the role of the bullion banks in the decades long silver market price suppression conspiracy, to infinity in the event of a U.S. Dollar hyperinflationary scenario.

Fair warning should be given that any discussion of price assumes that it is expressed in terms of a fiat currency or forced legal tender.

Of course, the ultimate measure of silver’s value is instead its purchasing power, although this value is much murkier and more difficult to compute given that investors are currently living in an age of faith based fiat currency.

Bullish Scenarios For Silver Prices
A number of bullish scenarios exist that could substantially increase the price of silver if they were to materialize.

They include the following: When Physical Shortages Spike Premiums – Retail scarcity of silver could ignite physical premiums, thereby completely detaching the physical price from whatever paper price is being printed by the CFTC ‘regulated’ markets.

If Price is Determined Outside of the United States – Physical demand would prevail once again and would very likely cause the price of silver to overshoot its inflation adjusted highs.

Without a Concentrated Short – A silver market that trades freely based on the amount of available investment grade silver would likely overshoot anything currently considered reasonable in terms of price.

The Historic Gold-Silver Price Ratio – This measure has typically traded between 10 and 20 ounces of silver to 1 ounce of gold, rather than the currently observed value in excess of 60 to 1. This historical price ratio range roughly parallels the mining ratio of 9 to 1.

Gold to Silver Investment Ratio Inverted – Using the above ground investment grade 1000 ounce bar form, the gold to silver ratio reverses, thereby potentially making silver more valuable than gold since silver is rarer in its investment form.

Technical Analysis
Fairly conservative technicians currently seem to expect $100 to trade after a $50 breach, although a correction to test the base at $50 could then materialize.

Revised CPI Measures – When the price of silver is inflation adjusted from its historic highs using the old CPI measure, people like John Williams have been quoted saying it should be as high as $500 per ounce. Using Money Supply – Given the rapid expansion of the money supply since the gold standard was most recently abandoned in 1971, which has accelerated even further after the 2008 financial crisis, analysts like James Rickards have pointed out that a price of $7,000 to $10,000 for an ounce of gold would make more sense.

Using the historically reasonable 20 to 1 price ratio, this analysis would put the price of silver in the $350 to $500 per ounce range.

Alternatives to Paper Money – Gold and especially silver may not achieve official currency status any time soon, but they are the best candidates for unofficial non-fiat money that investors can readily purchase.

Financial Repression – Current monetary policy continues with low interest rates, captured bond buyers and real (as of yet absent) growth priced in forced legal tender.

Hyperinflation To Quadrillions Of Dollars Per Ounce
Unbacked fiat currency money printing is running rampant under the flimsy guise of quantitative easing. Silver investors have all heard quadrillions associated with derivatives for a few years now. The BIS changed their calculation in 2009, making the amount of outstanding OTC derivatives smaller by approximately 500 trillion. Also, the market has long known that the Abe regime in Japan will soon pass the 15 zeros of debt mark, if they have not already done so. The devil is in the details and in this case the hyperinflationary details remain firmly entrenched in a cacophony of noise and distraction.