Buying Mania Will Push Silver Price Much Higher As Dow Jones-Silver Ratio Falls Back Towards 50/1

Steve St. Angelo Steve St. Angelo

Steve St. Angelo

May 5th, 2017 Comments

Just like the current market frenzy pushing Bitcoin to new all-time highs, the same sort of buying mania will also push Silver bullion prices to new highs. Even though the silver price and precious metals sentiment has fallen considerably, the market has no clue just how undervalued the shiny metal truly is.

Very few investors realize that the Dow Jones-Silver ratio back in 1981 was 50/1. This means, 50 ounces of silver would buy the Dow Jones Index 46 years ago. Today, the Dow Jones-Silver ratio is trading above a staggering 1,200/1. Thus, it takes 1,200 ounces of silver to buy the Dow Jones Index today as the ratio is nearly 25 times higher today than it was in 1981.

Of course, a large percentage of the silver price increase during the 1970s was due to the Hunt Brothers acquiring a lot of the metal during the decade. However, a great deal of institutions came behind the Hunts and also bought silver during the latter part of the 1970s. Lastly, we had the typical “Braindead” public come in and buy at the top. It is so unfortunate that the public doesn’t understand long-term investing or wealth preservation. Instead, they buy as much stuff on credit today and then worry about paying for it all tomorrow.

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Bitcoin Hits New Highs While The Silver Price Continues To Languish

According to the article, Bitcoin Soars Above $1,600 On Relentless Japanese Buying Frenzy:

Four days ago we reported that Bitcoin has surged above $1,400, hitting a new lifetime high, while rising above $1,500 on certain Chinese exchanges. Since then, Bitcoin’s latest exponential rise has only accelerated, and moments ago the price of the cryptocurrency surged as high as $1,600 on the Coinbase exchange, rising as high as $1,655 on the troubled Bitfinex exchange.

Bitcoin Chart

We summarized the ongoing Bitcoin frenzy as follows on Monday: “Just as the Chinese bubble frenzy in Bitcoin is fading, it may be replaced with a new one, in which thousands of Mrs. Watanabe traders shift their attention away from the FX market and toward digital currencies,” and added that, “If the transition is seamless, there is no telling just how far this particular bubble can grow.

The reason the price of Bitcoin is rising so much compared to the silver price… is quite simple. When more buying and money moves into Bitcoin, the price moves up much higher because the amount of Bitcoins outstanding is limited. However, when a great deal of buying comes into the Silver market, the Bullion banks, such as JP Morgan, can just add more contracts. So, the huge pressure heading into Bitcoin is released at much higher prices, while the pressure in the Silver Market is released by adding more and more contracts onto the exchanges. So, this caps the silver price and momentum.

That being said, silver is considerably undervalued compared to the Dow Jones Index presently. This is due to the massive amount of monetary printing and debt being funneled into broader markets. Unfortunately, these highly leveraged debt-based markets won’t last for long.

Why? Because the falling oil price is gutting the entire system. Today, the oil price has fallen a whopping $2.30 to $45 a barrel. I can tell you, very few oil companies are making money at this price. Without cheap and rising oil production, the STOCK, BOND, and REAL ESTATE MARKETS are DOOMED.

Dow Jones-Silver Ratio Will Move Back Towards 50/1

When the world was experiencing serious inflation in the 1970s, the Dow Jones-Silver Ratio was below 50/1:

Dow Jones - Silver Ratio 1981-2017

We can see this if we look at the bottom left-hand corner of the chart. During the next 20 years, the Dow Jones-Silver ratio surged to a peak of 2,500/1 in 2001. When the silver price spiked back up towards $50 in 2011, the Dow Jones-Silver ratio fell to 300/1. Currently, it is trading at over 1,200/1.

Again, the reason the price of silver surged during the 1970s was due to the tremendous amount of inflation in the oil price which impacted all commodities and precious metals. We must remember, when the oil price hit a high of $35 in 1980, silver reached a peak of nearly $50. However, when silver was trading at $49 in May 2011, the oil price was twice as high at $100.

Now, as I have stated several times, the price of oil will continue to trend lower in the future. This is due to the falling net energy and its value impact on the economy. So, why do I forecast a much higher silver price rise if the oil price falls? It’s due to two reasons:

  1. The tremendous amount of debt in the world is propping up most STOCKS, BONDS & REAL ESTATE. Debt can only be kept elevated if there is abundant and cheap energy. As the U.S. and global oil industry starts to disintegrate, debt will implode… so will the value of most stocks, bonds, and real estate. Investing looking to protect wealth, will move into gold and silver in a way never seen before in history.
  2. The Falling EROI -Energy Returned On Investment of oil means that the current way of extracting silver by the majority of the mining industry will no longer be commercially viable. Because most of the high ore-grade silver mines are gone, trying to extract silver the old fashion way, or with a lot less energy and technology means the silver supply will plummet. With very little above-ground investment silver in the world, this will cause more pressure to push the price even higher.

While I understand the low paper silver price is frustrating for many investors, they need to understand that the current INSANE MARKET is not going to live for much longer. Using a massive amount of debt and monetary printing to keep things going was never a long-term solution. Now that the oil market is being gutted by a low oil price, this will help speed up the collapse of the financial system and economic markets.

Watch as more fireworks take place in China and the U.S. Markets. This will cause demand for goods and services to fall, thus impacting demand for oil and base metals. I see the price of copper, zinc, and lead continue falling as the markets roll over. As the price of copper, zinc, and lead decline, this will also gut the Base metal mining industry where 56% of global silver production comes from (13% comes from gold mining and 30% from primary silver mining).

When the buying mania from the Institutions, Hedge Funds, Retail, and Physical investors comes into the market, watch as the Dow-Jones-Silver ratio falls back towards 50/1… and the silver price hits an all-time new high. Learn how to buy silver bars and coins to add to your holdings while the price is low. 

Steve St. Angelo

About the Author:

Independent researcher Steve St. Angelo started to invest in precious metals in 2002.  In 2008, he began researching areas of the gold and silver market that the majority of the precious metal analyst community has left unexplored.  These areas include how energy and the falling EROI – Energy Returned On Invested – stand to impact the mining industry, precious metals, paper assets, and the overall economy.