I few days ago I wrote that the high nominal price of gold is actually relatively inexpensive if we compare it to the U.S. monetary base. I was also curious about the price of silver. The results are below.
The blue line shows how many billions of ounces of silver it takes to equal the monetary base. The lower the line is, the more expensive silver is; the higher the line is, the less expensive it is. In 1979, the average price of silver was $21.79 per ounce, and the monetary base stood at $133 billion, so the monetary base was worth 6.12 billion ounces of silver. In 2002, the average price of silver was $4.60 per ounce, and the monetary base stood at $639 billion, so the monetary base was worth 149 billion ounces of silver.
On June 29, 2011, the U.S. monetary base was worth 76 billion ounces. This is only slightly lower than the 1993 ratio of 78 billion ounces. Even though the Dollar price of silver has increased almost 500% between 2000 and 2010, in terms of credit expansion, silver is essentially as cheap today as it was when the average Dollar price was $4.97.
Now for the exciting part. How high would silver have to rise before it reached a 1980’s style bubble?
(1980 high point)/(1980 monetary base) = (equivalent high point)/(current monetary base)
(49.45)/($133,436,000,000) = (X) / ($2,645,989,000,000)
X = $980.57
The price of silver would have to reach $980.57 before it is in 1980 bubble territory. The closing price yesterday was $36.90.