In the perpetual battle of silver bull vs. bear, some say the bear has the upper hand.
At least for right now.
Many analysts and investors point to silver’s April 2011 surge to nearly $50—and the subsequent correction—as proof that silver’s long, secular bull market, which began in 2002, is officially over.
Some naysayers even compare 2011’s peak to the infamous surge of late 1979 and early 1980. Following that parabolic rally, silver dropped by nearly 50 percent in two months. Some investors jumped in during that legendary rally and were burned—so spooked, they would never consider investing in silver again.
Indeed, as an investment, silver has often been shunned, including by “experts” and advisors who blame silver’s “volatility” for their bearish sentiment on the metal.
If you’ve read our blog and/or silver investors knowledge center, you know we take the opposite view.
We Put Our Money on the Bull
As an investment, silver actually has fantastic long-term potential!
If you look at silver in real inflation-adjusted terms, it’s easy to see how the bull market is far from over. To get a full understanding (and to compare today’s market to 1980’s), you have to account for inflation.
The Cost of Inflation
In the days of Night Rider and the Dukes of Hazzard, the average household income was just under $18,000 a year. Today it’s over $50,000. And on average, back then, a new house cost roughly $76,000, while a new car was under $6,000.
Silver in 1980 peaked at $48 an ounce. Today, that equals about $142—a conservative estimate since the U.S. Consumer Price Index is calculated in a way that masks the true extent of rising prices in the economy.
(Read our knowledge center article, The Consumer Price Index – Measuring Changes in Prices for more background on the way rising prices are measured.)
This YouTube video titled, Silver – The People’s Metal from ResourceInvestor.com frames the silver price in context of “market cap.”
In 1980, silver’s value was roughly 10 percent of the market cap of the entire U.S. stock market. In today’s dollars, that would mean the value of all of the silver in the world would be an eye-popping $1.5 trillion, approximately $700 per ounce!
Silver Mania
Another point the silver bears aren’t considering is the nature of the rally.
In late 1979/early 1980, silver’s rally became a popular speculative mania—an incredibly rare event.
Indeed, the dramatic, almost vertical movement in price bordered on insanity, since just about everyone wanted in on the action. Media coverage of the 361 percent surge was virtually nonstop. Some people took out second mortgages to buy silver.
The general public became enthralled with the metal.
Yet once the peak was reached, silver gave back its gains almost as quickly as they materialized.
Compare that to the spring of 2011, when silver hit nearly $50, then consolidated back to about $30 for the rest of 2011 and all of 2012. The “upleg” involved only a small fraction of investors.
Even today, silver is rarely mentioned in the mainstream press, and it’s not something the general public is rushing out to buy.
Slow and Steady Wins the Race
Silver’s rise since 2001 and 2002 has been gradual.
The 70’s bull market was sporadic, with several down years followed by some strong up years.
This time around, the only real down year for silver was 2008, followed by a 52 percent gain in 2009, and an astounding 83 percent gain in 2010.
Many, including Adam Hamilton of Zeal Intelligence, speculate that the April 2011 rally to $48/oz was fueled by the Federal Reserve’s Quantitative Easing, or QE-II.
Charts show that silver is currently in the early stages of another “upleg,” especially considering that QE-III is just getting started—and its effects have yet to be felt in the broader economy.
A Bright Year for Silver
Like we always say, we can’t predict the future.
But we’re confident silver is nowhere near its peak, especially when you consider real-inflation adjusted terms. When you do that, it’s easy to see why silver bulls have such a sunny outlook.
Since 2012 was a relatively flat year for the metal, some expect 2013 to be a good year – especially when you look at the monthly bond-buying program at the Fed, which will increase the money supply by roughly $85 billion a month. Indefinitely.
From what we’ve seen so far this year, we think now is a great time to buy silver bullion.
It’s important to remember this: don’t wait for a Speculative Mania to jump in. By then, the train has left the station.
Today’s world is much different than it was in 1980. If a speculative mania were to materialize in this day and age, it would most likely be bigger, since Asian economies are more wealthy and access to financial information is just a click away.
We Want to Hear From You
What’s your sentiment about today’s silver market?
Was the 2011/2012 correction just a consolidation? Or was it a long-term decline in bear territory?
Leave us a comment below, or drop us a line on Facebook and Twitter.
