It’s no secret that the gold and silver markets are manipulated – the so-called “bullion banks” have admitted as much. As such, many people are claiming that the bankers’ hijinks is proof positive that precious metals have been artificially undervalued. In fact, silver has been manipulated for many years to maintain confidence in the US dollar. With that in mind, the real question becomes: How much is silver undervalued?
Why Silver Is Undervalued
To be sure, there’s plenty of historical evidence that suggests precious metals prices are much lower than they should be. In fact, many people believe that silver is currently the most undervalued asset in the entire world.
They may have a point. Consider these facts:
- After oil, silver is the second most widely used commodity in the world
- Silver demand has outstripped production for many years
- The silver price reached an all-time high of $50 in 1980
- Silver is the only commodity in the world that is currently priced lower today than it was back in 1980
In fact, silver is still almost 50% cheaper today in nominal terms than it was in 1980. And after adjusting for inflation, silver is approximately 85% cheaper today than it was in 1980! This is even more astounding when you consider those prices are based on purposely-understated inflation figures. Figures that are designed to make the dollar appear stronger than it really is.
As a point of comparison, the nominal price of copper has more than doubled since 1980. This is despite it being far more plentiful than silver.
Still not convinced?
Historical Silver Price Comparison
Well, here is one particularly interesting historical example that suggests why silver — and by extension, gold — may be significantly undervalued in today’s currency:
In 1923 at De Croes’ French Restaurant, Indianapolis, a t-bone steak dinner, including French fried potatoes, salad, hot biscuits and syrup, tea or coffee, sold for 40 cents. Of course, at that price a diner would need just four dimes to cover the tab. And since every US “Mercury” dime in 1923 contained exactly 0.072 troy ounces of silver, it can also be said that a fancy steak dinner from De Croes’ cost 0.29 troy ounces of silver.
Keep in mind that the price of silver is currently hovering in the neighborhood of $31 per troy ounce. This means today’s melt value of those same four US “Mercury” dimes is $8.93.
Can somebody please tell me where I can get a quality t-bone steak dinner with all the trimmings today — cooked in a French restaurant, no less — for $8.93?
Heck, I can’t even do that at Denny’s; they currently offer a t-bone steak with mashed potatoes, broccoli, dinner bread and tea or coffee for approximately $30. And while I’m sure most Denny’s fry cooks can handle typical diner fare with aplomb, I’m just as sure the steaks they’re serving will never be confused with the t-bones coming from a high-end French restaurant chef.
The Correct Silver Price
That being said, if we agree to stipulate that a steak dinner at De Croes’ is equivalent to one at Denny’s then, all else being equal, that suggests the correct price for silver is currently in the neighborhood of $104 per troy ounce. On the other hand, if you believe a similar steak dinner from a high-end restaurant today is closer to, say, $90, then a fairer price for a troy ounce of silver today should be $312 — if not more.
Is this definitive proof that silver is currently selling for much less than its true value? No. But it does offer some insight into how much precious metals might actually be worth today in a truly free market.
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(This is an updated version of an article that was originally published on 17 August 2017.)
Photo Credit: public domain
Wow really puts it into perspective. Plus makes me feel better about my silver purchases. I have found it harder purchase gold consistently. Great article thanks Len.
Me too, JB. The upside potential for silver is at least four times that of gold, based on the current gold-silver ratio. Of course, since the market is smaller, you have to stomach the increased volatility — but that shouldn’t be an issue for those who are buying for the right reasons (i.e., buying it as insurance, rather than for speculative purposes).
Using 1980 to base any comparisons on silver prices is absurd. Did you forget the Hunt brothers scheme?
Red: The more important comparison you should be focusing on is the one I made between 1923 and today — not the factoid about the high-price in 1980.
And while you are correct that the Hunt brothers were partly responsible for the run-up in the silver price in 1980, there were other factors as well — namely, the US dollar was on the verge of collapse before Volcker saved it. Remember, the lack of faith in the US dollar was so great that the US had resorted to selling bonds denominated in Swiss francs back then.
By the way, at the time, gold — like silver — also peaked in 1980 at $850 an ounce. Since then, the dollar price of gold more than doubled that all-time high — reaching almost $2000 in 2011 — and yet silver is still waiting to simply surpass its nominal 1980 price.
This is why I like your site so much. The others are basically echo chambers of personal finance. If you say much about precious metals they label you some sort of crazy person.
I want to be financially free, and have am a huge precious metals guy. I also stockpick too. Pretty much the devil compared to the predominant vanguard index fund mindset.
One just has to look at the history of gold/silver and see that something is out of wack with it all. I feel that the time for silver to shine is coming up soon.
Great article, keep’em coming!
Thanks, Justin. Appreciate the kind words.
25 years ago I took a silversmithing course in Boulder Colorado. Long story why, but my wife and I paid the modest tuition and then for 2 weeks spent 8-10 hours per day casting and soldering silver. Included with the tuition was all the silver we could use….it was that cheap at the time. Stayed in our camper on site, then for a week at Estes Park.
Here is the lesson I learned about silver some 15 years after the Hunt manipulations. 25 cents worth of silver worked with care and attention increased its’ value to $50 or above. As a mineral it had little value compared to its value after it was turned into jewelry or art. I think I still have quite a bit left somewhere in the shop, and many pieces of finished jewelry. The biggest earners were pendants and earrings.We used silver for bezels, and the cost per silver chain was in in the cents. I think the bezel material came in a roll, but not sure anymore.
This is the same story for wood. I have been building for 50+ years. My favourite wood is yellow cedar, the species Japanese use for their temples. In the 80s it was the cheapest wood I could buy on the west coast and I used it for many projects including structures for Fisheries that would be buried in stream banks and under the substrate as it does not rot. My shop is actually constructed of yellow cedar and sheathed/sided with 2X10s vertical board and batten. I have several cords of it now, just waiting to be cut up for firewood.
But a suitable log used in temple construction might be valued at $25,000 and is hand selected on site by the traditional builder sent to Canada for just that purpose. Same story for spruce. I won’t even use it for firewood it is so low in BTUs, but a clear old growth log might fetch $10,000 for musical instruments….sound boards. This winter I will be making floor lamps out of some scrap yellow cedar left over from a post and beam project. Estimate a finished value of $500 per. Cost to build, $20 each, the most expensive parts being electrical.
The point of my post is that material hoarding of any kind as a retention of wealth is dwarfed by value added. And value is decided by other people; defined by either utility or beauty. Silver is the best conductor of electricity known and is used in solar panels, chips, etc. They grind it up and spread it as a paste on silcon wafers made from quartz sand. These are common common elements only given value by human ingenuity and utility. There are better investments, imho.
Len will disagree with me and I respectfully accept his POV. But what would I invest in, you might ask? (Hah) Depending on age I would invest in myself. I would take that same dollar amount you might use for silver (in case the trajectory meets our fears) and learn a skill that other people might want to use or actually need. You will be paid for it in the currency in use. It is why I build and fix things. Here is just one example. This week I spent one hour reconditioning a failed starter motor. I had to buy a new one for my boat, and then decided to fix the old one for a spare. Why? They cost $600 dollars, that’s why. 1 hour…a little piece of 200 grit sandpaper and some buffing cloth saved me $600. If I were in my twenties I would take first aid and medical training. Many many courses and training programs can be done online or done locally at community colleges for beyond cheap. Investing in skills pays off your entire life.
Just my two cents worth, pun intended. Cheers.
Thank you for the compelling insights into the undervaluation of silver! The evidence presented in your blog strongly supports the case for silver being undervalued, offering valuable perspectives for investors. I appreciate the thorough analysis and thoughtful exploration of this important topic.