While the gold price was only able to moderately increase at the end of November and in the first days of December, silver broke through the $50 per ounce mark with momentum in recent days and shortly thereafter reached the new all-time high of $54 formed this fall. Subsequently, the quotations continued to rise and quickly advanced into the range between $58 and $59.
The fact that silver is rising so quickly within a few days is less remarkable than the fact that this increase occurred at a time when neither gold nor the other two important white precious metals, platinum and palladium, were able to achieve strong price gains. In other words, silver is not only performing strongly at the moment, but also on its own.
The remarkable current strength of silver was also evident on December 2, when gold, platinum and palladium corrected their previous increases, while the silver price only moved sideways for a few hours and hardly weakened. Even in the correction, the small brother of gold showed an impressive strength.
Bloomberg speaks of an inflation-adjusted silver price of $150 per ounce
In the media, especially in the financial media, there was a lot of talk about silver afterwards, because they were trying to classify the recent increase. In this endeavor, the US news agency Bloomberg pointed out that an ounce of fine silver would have to cost $150 today if the long-standing all-time high from 1980 of $50 were adjusted for the inflation rates of the years since then.
However, this Bloomberg calculation is based on “only” the official inflation rates since 1980. A completely different picture emerges if one uses the earlier methods for calculating the inflation rate, which were decisively changed in the 1990s, as the basis for the silver prices adjusted for inflation. At that time, they began to include technical improvements, which increased the performance of the products sold, such as faster processors in computers, as price-reducing in the inflation rate.
The result, as politically desired, was significantly lower inflation rates. However, if one calculates the inflation rates according to the old method, as it was used in 1980, a completely different picture emerges for silver, because in this case the inflation-adjusted silver price would not be $150 per ounce, as Bloomberg states, but rather in the range of $300 to $400.
One can argue for a long time about which of the two calculation methods is the better one, and yet at the end of the discussion the question will remain which of the two results is the more correct one. As a solution, it is therefore advisable at this point to remember the monetary property of silver and make it the basis of a comparison.
A comparison with the money supply M2 destroys all illusions about our fiat money system
Because unlike copper or aluminum, silver is not only important as an industrial metal. Like gold, it is also a currency metal. In recent years, the monetary function of silver has been somewhat forgotten. However, it is still present and it is this function as money and one of the oldest stores of value of mankind that still distinguishes silver from platinum or palladium today.
It is hard to believe, but in 1980 the money supply M2, despite all the inflationary surges that had occurred in the 1970s, was only 1.6 trillion US dollars. Today, on the other hand, we enjoy an M2 money supply of over 22 trillion US dollars. Or, in other words, for every US dollar that was in circulation at that time, 13.75 US dollars are now swirling through the financial system.
Against this background, the 50 US dollars per fine ounce of 1980 correspond to a silver price of 687.50 US dollars. At the beginning of December, silver was still miles away from this, despite the recent all-time highs with prices between 48 and 49 US dollars per ounce. It is therefore quite appropriate to speak of a bubble. However, this bubble has not developed in silver in the last 50 years, but only the paper money has been inflated.
Investors who want to protect themselves from this bubble and the associated devaluation of money are still well advised to acquire physical silver or invest in the companies that promote it or search for it. As long as only double-digit US dollar prices per ounce are called up for an ounce of silver, silver is still cheap, because unlike the many paper money, which, as Voltaire said, will always return to its intrinsic value of zero, silver can neither be quickly promoted in large quantities nor arbitrarily increased.
