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Buying Mania Will Push Silver Price Much Higher As Dow Jones-Silver Ratio Falls Back Towards 50/1

by Steve St. Angelo, SRSRocco Report:

Just like the current market frenzy pushing Bitcoin to new all-time highs, the same sort of buying mania will also push the silver price to new highs. Even though the silver price and precious metals sentiment have fallen considerably, the market has no clue just how undervalued the shinny metal truly is.

Very few investors realize that the Dow Jones-Silver ratio back in 1981 was 50/1. Which means, 50 ounces of silver would buy the Dow Jones Index 46 years ago. Today, the Dow Jones-Silver ratio is trading above a staggering 1,200/1. Thus, it takes 1,200 ounces of silver to by the Dow Jones Index today as the ratio is nearly 25 times higher today than it was in 1981.

Of course, a large percentage of the silver price increase during the 1970’s was due to the Hunt Brothers acquiring a lot of the metal during the decade. However, a great deal of institutions came behind the Hunts and also bought silver during the latter part of the 1970’s. Lastly, we had the typical “Brain dead” public come in and buy at the top. It is so unfortunate that the public doesn’t understand long term investing or wealth preservation. Instead, they buy as much stuff on credit today and then worry about paying for it all tomorrow.

Bitcoin Hits New Highs While The Silver Price Continues To Languish

According to the article, Bitcoin Soars Above $1,600 On Relentless Japanese Buying Frenzy:

Four days ago we reported that bitcoin has surged above $1,400, hitting a new lifetime high, while rising above $1,500 on certain Chinese exchanges. Since then, bitcoin’s latest exponential rise has only accelerated, and moments ago the price of the cryptocurrency surged as high as $1,600 on the Coinbase exchange, rising as high as $1,655 on the troubled Bitfinex exchange.

We summarized the ongoing bitcoin frenzy as follows on Monday: “just as the Chinese bubble frenzy in bitcoin is fading, it may be replaced with a new one, in which thousands of Mrs. Watanabe traders shift their attention away from the FX market and toward digital currencies” and added that “If the transition is seamless, there is no telling just how far this particular bubble can grow.”

The reason the price of Bitcoin is rising so much compared to the silver price… is quite simple. When more buying and money moves into Bitcoin, the price moves up much higher because the amount of Bitcoins outstanding are limited. However, when a great deal of buying comes into the Silver market, the Bullion banks, such as JP Morgan, can just add more contracts. So, the huge pressure heading into Bitcoin is released at much higher prices, while the pressure in the Silver Market is released by adding more and more contracts onto the exchanges. So, this caps the silver price and momentum.

That being said, silver is considerably undervalued compared to the Dow Jones Index presently. This is due to the massive amount of monetary printing and debt being funneled into broader markets. Unfortuantely, this highly leveraged debt-based markets won’t last for long.

Why? Because the falling oil price is gutting the entire system. Today, the oil price has fallen a whopping $2.30 to $45 a barrel. I can tell you, very few oil companies are making money at this price. Without cheap and rising oil production, the STOCK, BOND and REAL ESTATE MARKETS are DOOMED.

Dow Jones-Silver Ratio Will Move Back Towards 50/1

When the world was experiencing serious inflation in 1970’s, the Dow Jones-Silver Ratio was below 50/1:

We can see this if we look at the bottom left-hand corner of the chart. During the next 20 years, the Dow Jones-Silver ratio surged to a peak of 2,500/1 in 2001. When the silver price spiked back up towards $50 in 2011, the Dow Jones-Silver ratio fell to 300/1. Currently, it is trading at over 1,200/1.

Again, the reason the price of silver surged during the 1970’s was due to the tremendous amount of inflation in the oil price which impacted all commodities and precious metals. We must remember, when the oil price hit a high of $35 in 1980, silver reached a peak of nearly $50. However, when silver was trading at $49 in May 2011, the oil price was twice as high at $100.

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1 comment to Buying Mania Will Push Silver Price Much Higher As Dow Jones-Silver Ratio Falls Back Towards 50/1

  • pipes

    I stack.
    Rocco’s logic is all wet, though.
    Sure there is massive manipulation of metals…and I too look forward to a day when ratios revert to what is considered “normal”.
    But the expectation of that happening based on the stated logic here, is unfounded. If crypto and phys were equals, then we would expect there would already be a similar flight into phys, as there is to crypto – but there isn’t – and it’s NOT merely being ‘hidden’ or overshadowed by the paper game.
    No matter what the rabble says, crypto is fundamentally more attractive to a large number of folks at this point, because of the lack of manipulation, sure…but also because it is far more easily obtained, moved, transferred, and protected. This matters ALOT to the folks who are flooding into it right now. Understanding that they are the first ones in, also brings the comfort of believing the exchange rate with central bank currencies will only become more favorable as more folks partake…while they simultaneously watch the metals get hammered day in and day out.
    One thing Rocco doesn’t take into account is that it is entirely possible that BECAUSE crypto exists, folks will NOT be driven by necessity (only) into metal, as money seeks safe harbor. Rocco posits that the flight to metal is inevitable, and will overwhelm the masters’ ability to suppress it. That may – or may not – be true…but what IS true, is that there is a new factor – a new ‘harbor’ – in town, and it has some decidedly different characteristics than metal, and approaching them as somehow logically ‘similar’, is foolish.
    Dullards can trot out EMPs, Jew plots, and TBTF machinations all they want…BUT IN THE REAL WORLD – the one we woke up in today – the one we all have to operate within – you can exchange your crypto for many, many more FRNs than what you could weeks, or months, or years (BTC) ago.
    And FRNs (or Yen, Yuan, Ruble, etc) are still the coin of the realm.
    And the fundamental truth is that as working stiffs, after we pay the bills, if there is anything left we can;
    a)sit in cash only
    b)buy some metal
    c)buy some crypto
    d)do a mix of any/all the above
    Each can be attractive for varying reasons to different people, but the simple fact is that ONLY ONE of those options currently MULTIPLIES the fruit of your labor.
    And in the REAL WORLD, anyone who DOESN’T maximize the reward for work invested…is a fool.

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