When should I sell my silver?

I am often asked what my price target is for selling silver, or when should people switch from buyers to sellers. While I believe the answer may be different for every person, I mainly want to emphasize – Not yet! Not by a longshot.

People understandably want a hard dollar figure for the price of silver as their target to sell. Well, the problem is the US “dollar” keeps being devalued and the supply inflated, and the available above-ground silver reserves keeps shrinking. That is the problem you face when you try to measure something with a shrinking yardstick. So instead of thinking about using dollars to measure silver’s worth, let’s think of the price of some other assets when compared to silver.

I tend to agree with the research of Mike Maloney, best selling author of Guide to Investing in Gold and Silver, who is a money historian and is regarded as an expert on the cycles of economies. He explains that investing correctly during each phase of the economic cycle is the road to true wealth. There will be a time when silver becomes overvalued when compared to other assets that will be undervalued at that time. He says that when the cost of a median priced single family home in the US sells for 500 oz of silver, it will be time to exit the silver market. In the 1980 silver peak, it cost 816 oz of silver for 1 median priced American home. However there was a lot more silver above ground in 1980, and this bull market for metals is based on a world-wide fiat currency collapse, and will make the Hunt brothers attempt at cornering the silver market look like a game of tiddlywinks. The bull run in commodities in the late 1970s was mostly centered only in the US, and the people of China and Russia were not able to buy silver or gold at that time. This current bull run on precious metals is a world-wide phenomenon and the government of China is heavily encouraging its citizens to buy physical silver. There will come a time when silver is overvalued, but it will not be time to sell your silver for dollars to hold. You should trade it for undervalued cashflow producing real estate or equities. The average single family home is now around $220,000, so this means it would take a price of silver today of $440/oz. Obviously, it has a long way up to go. With the shrinking supply of silver, it may only take around 200 ounces of silver to purchase an average US home!

US Home Prices in Silver

US Home Prices in Silver

Maybe you’d prefer to compare the price of silver to the price of crude oil. In the 1980 silver peak, the average price of a barrel of oil reached parity with silver 1:1. For the next 25 years, the price of a barrel of oil averaged around 4.5 oz of silver. Today, it is around 5 oz of silver for one barrel of oil. The oil and silver markets are volatile, but the silver:oil ratio has hovered around 4-6 per 1 barrel of oil. So perhaps it will be time to sell your silver the next time it reaches 1:1 parity with oil. Currently, that is around a 5x increase in the price of silver to reach this target.

Another comparison you can make is the price of the Dow Jones industrial average in gold. During the height of the dot-com bubble, it took more than 40 ounces of gold to buy 1 share of the Dow. Today, it takes around 8. Many precious metal experts like Mike Maloney and Peter Schiff believe the Dow/Gold ratio will meet at 1:1. Silver’s price would be pulled up along with gold, and if the Dow/Gold ratio went to 1:1 it could be a good time to cash in your precious metals for some undervalued stocks.

You should also consider the gold to silver ratio. Historically, silver has always traded around 16 ounces of silver to 1 ounce of gold. It has only been in the last century or so that the ratio has fallen to a high of 91 oz of silver to 1 oz gold. Money historians like Mike Maloney believe the free markets will overcome the manipulation of the price of silver and it will return to its historic 16:1 ratio to gold. Personally, I will seriously begin making plans to trade my silver for gold when the GSR approaches 20 ounces of silver to gold. However, I will probably only trade a portion of my stack for gold, because I believe eventually (perhaps in my kids or grandkids lifetime), that due to the silver being used and lost in industry, that silver will one day be more rare and valuable than gold.

The chart below is a graph of the history of the price of silver adjusted for inflation and the gold/silver ratio going back 660 years. The chart is a few years old, but I want you to pay attention to the gold line on the graph. This is the gold/silver ratio, which as you can see has hovered around 16:1 for hundreds (thousands, really) of years. It is only in the last 150 years of so that fiat inflation and demonetization set this ratio askew. These bubbles of fiat inflation have repeated themselves throughout history, and people have always reverted back to hard money. When the veil covering the eyes of the people is lifted, we can expect the GSR to return to its normal levels.

 

Gold/Silver Ratio 1344-2004

Gold/Silver Ratio from 1344-2004, and the price of silver adjusted to 1998 dollars