Admittedly, it must sound encouraging, and even exciting, to hear proclamations that a “silver” lining is now apparent in the metals complex. Or that a silver “blast-off (is) about to happen”.
Expectations abound for the long-expected, vertical leap in silver prices that never seems to come. And we are told it is supported by solid fundamentals that include supply deficits, a return to the 16 to 1 gold/silver ratio, increasing monetary demand for silver, etc.
However, an examination of those fundamentals reveals a different picture. And that picture is inconsistent with the call for higher prices.
The supply deficits (gaps in consumption over production) have been talked about for decades. In the sixties and early seventies they were the principal fundamental in the case for higher silver prices.
Throughout the twentieth century, industrial use of silver increased to the point where the consumption of silver eventually exceeded new production. This is the start of the consumption/production gap to which people refer quite frequently. The government became a willing seller in order to keep the price down. The specific purpose was to keep the price from rising above $1.29 per ounce. This is the level at which the amount of silver in a silver dollar is worth exactly $1.00.
The huge price gains for silver that occurred in the 1970s were largely attributable to years of price suppression prior to that.
Price suppression is not an issue now; and hasn’t been for nearly fifty years. The primary imbalance in supply and demand was corrected in the early seventies. If it hadn’t been, the silver price would already be a lot higher than it is.
The 16 to 1 gold/silver ratio is a myth. The gold-to-silver ratio that existed one hundred fifty years ago was mostly the result of political influence and appeasement. It was an arbitrary number.
There is no fundamental reason which justifies any particular ratio between gold and silver.
