Silver Under Priced - Gold Spot On - ShadowStats corroborated

http://www.measuringworth.com/uscompare/

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From what we can see here, a single Federal Reserve Note (FRNs) with a nominal $1 face value, is worth in terms of Real Dollars in 1912 (before the FED) at about 4.4¢ using the CPI.

Using data from http://www.ShadowStats.com, we see that this is closer to 2¢ due to understated CPI from the government.

And all of this as of the end of 2008 not factoring in the current inflationary expansion this year.

An ounce of silver, by definition of a Dollar by coinage from 1912 (before the FED) is worth $1.2929. (this is the reciprocal obtained after getting the fraction of grains of silver in a dollar - 371 4/16 - by total grains in a troy ounce - 480 - or .7734375)

Thus working backwards from current estimates of the Dollar value of a Federal Reserve Note, we can work out the equivalent price of silver in Federal Reserve Notes.

Currently, with silver at 17.44 FRNs to the troy ounce, this puts a Federal Reserve Note with a One Dollar nominal face value at a real value of 7.4¢.

Taking the 4.4¢ value of a FRN from the CPI, we get a correlating silver price of 29.61 FRNs!!

And working from the 2¢ ShadowStats estimate CPI, we get 64.65 FRNs!!

This shows that either silver has lost a large part of its purchasing power recently or more likely is WAY under priced in FRNs. Either one would suggest we are in little danger of seeing a massive correction to the downside for silver assuming the metal will tend towards its long term mean value.

With respect to gold, the official ounce price, if taken with the circulating coins from 1912 (before the FED), is $20.67. (the reciprocal of 232.2 grains out of 480 total to the ounce for the $10 Eagle coin or .48375) With the current spot of 1053.30 FRNs, this shows an FRN to be valued at about 1.96¢ of gold in 1912 terms.

Taking the ShadowStats estimate CPI of 2¢ we get a correlating price of 1033.50 FRNs to the ounce. (very close to what we see in the market)

Working backwards from the CPI of a 4.4¢ FRN value we get a correlating price of only 469.77 FRNs!!

This tells us that either Gold is WAY over priced in terms of the official CPI or that the official CPI is WRONG. Since we already suspect this because of known manipulations, and the fact that people are continuously paying more for goods and services beyond what the government thinks we are, it is a safe bet that the price of gold corroborates ShadowStats data.

This means silver is WAY under priced, and should be closer to the 64.65 FRN price noted above. Gold is pretty much Spot On! (pun intended)

Of course, since there has been massive inflation SINCE the end of 2008 in the supply of Federal Reserve Notes (and computer blips accordingly) then it is more likely that Gold (and silver) still have a ways to go before reaching their mean value. This doesn't mean that this is an upper limit, but the value to which they will trend. They will in all likelyhood overshoot this mean before they settle back down.