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My analysis of the true price of silver in today's dollars

The following is my analysis of where I feel the actual price of silver and gold should be if you look at a few historical examples.

To begin silver v.s. gold has traditionally been priced throughout history at approximately 16:1. This means for new people to the silver gold paradigm that 16 silver ounces would roughly equate to the price of one ounce of gold.

I am going to use 1850 as a timeline to try and show what silver and gold was at that time and then I will explain some other rationales that I have come up with to support my argument.

The reason I chose that date is it is back far enough in my opinion to go past the Pilgrim Society silver price manipulations. The reason it is next to impossible to use current pricing from the last 100 years or so is because price manipulations have kept the silver price and gold price artificially low so here goes.

For further reading I am going to include links to support some various theories I have where applicable. The first is a breakdown of another article citing how much silver should equate to a day of work. The idea is that a silver dime would support one day of work if you went back in time. The article essentially revises that but is not as important as historical figures I will also present. Please reference that first article here.

http://www.gold-eagle.com/article/days-wage-silver-dime-fact...

My premise is not so much based on a time in ancient Egypt or Rome since other commodities that we now take for granted (Salt, iron, steel, copper) would have been valued in those times much higher than we do today. Conversely our current technology would have been a game changer in the ancient world especially in relationship to weapons so that is a moot point.

This first link below is to a historical chart of the spot price of silver valued in dollars.

http://goldmastersusa.com/silver_historical_prices.asp

You can see from the chart that the spot price in 1850 was about 1.293 per ounce. There are two very important things to remember about this date that are important.

#1)Industrial usage of silver was mostly non-existent. The silver that had been mined in history up to this point was still available above ground in monetary coinage and bullion.

#2)1850 marked the discovery of the Comstock Load in Nevada which was so vast is actually skewed the prices of silver for probably 100 years or so. The huge supply brought in changed the game in silver bullion available later into the next century.

The next chart I am supplying is based on the historical prices of gold.

http://www.nma.org/pdf/gold/his_gold_prices.pdf

From the above chart you can see that the 1850 spot price of gold was $18.93 per oz.

With some simple mathematics we can divide the $18.93 spot price of gold by the $1.293 spot price of silver and we come up with roughly 14.64 to 1 on a ratio of silver to gold.

This is relatively consistent with what a historical ratio would be of 16:1. In this case 14.6:1 silver to gold.

Now that we have established that we should look at what a days labor was in 1850.

For starters 12 Pence would equal 1 Shilling and 20 Shillings would equal 1 Pound.

I am going to take a figure from the first link at the beginning of this article to show an approximate wage as follows. This is example #3 in trying to come up with an average wage.

www.econ.ucdavis.edu/faculty/gclark/papers/farm_wages_&_livi...

Look on page 18 for the following:

An Average wage in 1850 was about 18 pence. Despite the 50 year gap, this nevertheless seems to be a relatively accurate gauge of wages in 1900 based upon this line taken from the quoted portion of Source 2 (above):

"In the second half of the century average wages rose to a nominal 20/- (£1) per week, and stayed around this figure into the 1900s."

Dividing 18 pence by 240 (the number of pence in one pound) = 0.075 pounds/day. Multiply 0.075 by 4.5 (rate of exchange between British pounds and dollars) to get $0.33/day, or about 3 dimes per day.

So to paraphrase the above about .33 cents per day would be a daily wage.

If you were to buy one ounce of silver at this wage rate it would take you approximately 3.9 days of labor to accomplish this task.

To buy the same amount of gold in 1850 would have required 57.36 days of work to buy that one ounce of gold.

Ok, here is where that gets very interesting.

For the most part all gold that has ever been mined is still available in the world. Manipulation notwithstanding it is estimated that there are approximately 3 billion ounces of gold above ground in the world today. For the most part the gold from the Aztecs, Inca, Egypt etc would also be included in this figure as Gold is not used on industry.

Silver on the other hand has been consistently used up in the last 50 years and continues on a breakneck pace. Approximately 1 billion ounces are currently estimated to be above ground and available.

The yearly production of silver feeds into the supply for industrial demand and generally is keeping that amount fed.

So on a supply v.s. demand chart we could say that silver is more rare than gold regarding above ground supply of silver and above ground supply of gold.

1 Billion ounces silver to 3 Billion ounces of Gold. or a 1:3 ratio based on availability.

So let's jump back to my charting above and do a bit more math.

See page 2 in the link below:

http://247wallst.com/investing/2010/09/16/the-history-of-wha...

1850

-One bottle of port cost $0.11 (Greenville County, SC, 1847)
-One piano cost $195 in 1847
-A routine doctor’s visit cost $2 (Florida, 1852)
-A new home in Brooklyn, NY cost $2,500 (1853)

-One pound of coffee cost $0.80

-$1 in 1850 = $28.30 today

By 1850, the United States’ economy was doing extremely well thanks to the success of agriculture in the South and manufacturing and commerce in the the North’s. The nation’s population grew about five times its own size from the beginning of the century and, furthermore, labor productivity increased dramatically. Between 1840 and 1860, the country more than doubled its agricultural output. Its mining and manufacturing industries approximately tripled their worth over this time period.

So what was that wage of .33 cents equivalent to in today's dollars?

Type: Liberty Seated Dime
Year: 1850
Mint Mark: O
Face Value: 0.10 USD
Total Produced: 510,000 [?]
Silver Content: 90%
Silver Weight: 0.0723 oz.
Silver Melt: $1.39

You need to ignore the Silver melt price in Fiat to understand this premise. Roughly 13.83 dimes would equal one ounce of silver. This would track at about $1.38 in 1850 so it is still inline with the 1.29 per oz of silver average.

To fully understand the devaluation of your labor you would need to take an average wage from today and extrapolate it out based on silver to work output. We have determined that one ounce of silver is roughly equal to 3.9 days of work. One ounce of gold is roughly equal to 57.36 days of work.

Since the Gold part of the ratio has not changed that is the only constant that we can work with and therefore use an algebraic equation to equate what the value of Gold is v.s. that of silver. In other words an average wage today is probably about $20-$25.00 per hour.

I will use $25.00 per hour for arguments sake. I will also use an 8 hour work day (1850 the average work day was about 12 hours).

So we can approximate that a worker could expect to make $200.00 per day. To gain one ounce of gold that should equate to 57.36 days. This comes out to a spot price for gold of about $11,472.00 in today's dollars.

As can be seen above the "dollar" value is relative mainly because we are looking at another constant which is your body, your person.

3.9 days of hard work for one ounce of silver.

58 days of hard work for one ounce of gold.

Sure some wages would skew that but the important thing is that you are storing labor with gold and silver.

Now for the interesting part.

We can further extrapolate based on supply and demand that silver should be 3 times more valuable than gold. As a store of value it should be 3 times 57.36 days of labor or 172.08 days of labor to equal on ounce of silver.

I realize that figure is practically impossible to grasp when you can buy silver at today's spot price of $20.00 or 1/1oth of one days labor in today's pricing.

Further using a spot price of $11,472.00 for gold ($200 times 57.36 days) that would track that silver in today's labor value should be roughly $34,416.00 per ounce (3 times more rare than gold) based on actual supply and demand in relationship to a traditional 16:1 ratio turned to a 1:3 ratio.

That means that for every 2.12 ounces of silver you own you have purchased an entire years worth of work at today's silver ratios in labor.

The key to tracking the devaluation is the labor. This rate has been very consistent throughout history. It also points at how shocking our current devaluation of purchasing power has become. It would seem absurd to work for that same .33 cents equivalent in silver today. At current spot prices that would work out to a paltry $4.55 cents per day of wages. Nobody could imagine working for that sum.

Just to bring it inline with that figure of .33 cents the gram weight would be 8.25 grams of silver. This should equate at $200.00 per day to $24.24 cents per gram. If one troy ounce is 31.1 grams that should be about $753.94 cents per oz.

Pretty much any way you slice it this is a crazy under appreciated asset class.



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Another recent

Another recent analysis...


http://youtu.be/G1dUtRRms7g

“Let it not be said that no one cared, that no one objected once it’s realized that our liberties and wealth are in jeopardy.”
― Ron Paul

Lots of data here

Good stuff here and good to see you're thinking! I have looked into a lot of the same type of data and think there is something off on the silver pricing but not entirely sure. What I did not see in this was the huge explosion of silver supply from about 1870 on with huge amounts of silver from the Americas being found. The expansion of supply went nuts! The end of this page explains it pretty well.

https://www.silverinstitute.org/site/silver-essentials/silve...

"To ski powder is to waste it" - Jake Burton

I enjoyed your analysis

Thank you for the well thought and nicely presented summary!

Cost to mine silver

Have you done any analysis on the price of silver compared to the amount of effort needed to mine silver? (also taking into consideration supply and demand)

Aaron Hoffman

There are other ways to look at it.

One is to determine a long trend by taking a reasonable amount of historic data, and fitting a curve using any reasonable formula for a nonlinear curve. This produces something that can be considered a long trend line.

I do it using the weekly closing price beginning with data in 1959, and fitting a curve with the formula for a 3rd degree polynomial. That produces a non-linear curve that runs through the data with the square of the variances from the curve being less than any other curve running through the data, based on that formula. You can try any logical curve fitting technique and you will produce a similar line.

The curve shows a value of $13.60 for this week, and that curve has a very gradually positive slope since 1959. A year ago the value was $13.20, and a year from now it will be $14.00.

The actual market price oscillates above and below that curve driven by cyclical forces and random events, but the random events are small and tend to cancel one another out. The majority of the movement around the curve is the sum effect of many, many simultaneous oscillations which can mathematically be identified and measured. In 1980 and again in 2011 the combined effect of all the many cyclical forces drove the silver price very far above the fitted curve. We are today's price of $19.15 is still above the fitted curve line value of $13.60, and the cyclical forces, based on my work to identify and measure these cyclical oscillations, should drive the price slightly down below $5.00 by this time next year, before a long slow recovery occurs.

I bought a large amount of silver and silver mining stock in 2001 and 2002, and sold a few months before the peak in 2011. When I sold in 2011 I expected a much earlier sharp drop than occurred after, but I still show a continued drop which should accelerate over the coming months.

I think if you are long silver you are facing a huge risk of loss. The place to be now is the stock market until mid 2015 when it will be time to exit stocks and start phasing back into silver and gold.

Now, go ahead and flame away. I would rather be flamed on the internet for an unpopular opinion than burned in the markets.

"Bend over and grab your ankles" should be etched in stone at the entrance to every government building and every government office.

Excellent Silver Price Analysis!

Clearly silver's price seems out of whack relative to all else

Here is silver vs the dow and gold the past 44 years:

http://smaulgld.com/silver-vs-dow/

and silver in 1979-80 vs. 2013-2014:

http://smaulgld.com/silver-vs-dow/

Please subscribe to smaulgld.com

hmmm

Very interesting, but where does it get us? Keep stacking I guess.

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