Over the years (and decades), silver has traveled a path fraught with excitement and disappointment.
Both the excitement and the disappointment stem from three things that are killing silver - unrealistic expectations, inflation, and time.
UNREALISTIC EXPECTATIONS
The unusual conditions leading to the explosion in the silver price in the late 1970s are unlikely to happen again in a similar context...
"There are two primary reasons for silver's price surge in the 1970s.
1) Silver mining production lagged consumption for nearly two full decades during the 1950s-60s. During that period, the U.S. Treasury sold silver regularly from its hoard of nearly two billion ounces. This action kept the market price for silver suppressed. By 1970 nearly all of the silver was gone and the Treasury had to stop its sales. Thus, the price of silver was freed to find a presumably higher level that would eventually balance consumption and production.
2) The United States suspended all convertibility of the U.S. dollar into gold in 1971. Those who were prescient enough to recognize the ongoing threat of further U.S. dollar depreciation, purchased gold and silver based on their historic roles as money.
The Hunt family's involvement simply added to these two forces and likely sent silver prices far beyond any reasonably sustainable level at the time. From an average price of $1.60 to a high of $49.50 in January 1980 represents a three thousand percent increase."
(The comments above were my response to a reader's inquiry six years ago which was prompted by my article No Silver Lining Here)
INFLATION
The second factor that is killing silver is inflation. No matter how often or how extensively people argue that silver is a hedge against inflation, the facts say differently. Since its peak in 1980 silver has not matched the effects of inflation, let alone produced any real profits.
The current silver price is less than half its 1980 peak price in nominal terms alone ($22.80 currently vs. $48.50 1980). When we adjust for the effects of inflation since 1980, silver is cheaper today by almost eighty-eight percent ($22.80 currently vs. $180 oz. 1980).
None of this has stopped the calls for the silver price to exceed $100 oz.. In fact, the longer we wait, and the farther we seem to move away from any original unrealistic price targets, the price projections get adjusted upwards to compensate for the losses inflicted by inflation. (see Inflation Is Killing Silver)
All of this leads to the third factor that is killing silver - time.
TIME
It is said that "time waits for no one". With silver bulls, time doesn't seem to matter at all. The longer it takes, the higher the price will rise; or, so they say. Meanwhile, the effects of inflation eat away at silver's value and widen the distance between silver's current price and what were already unrealistic expectations for its price targets.
Given all of this, is there any reason at all to own silver? Of course..
REASONS TO OWN SILVER
IF you are a short-term trader or speculator who has a knack for timing, by all means place an occasional bet. Yet, be quick to take your profits. Silver has a notorious history of reversing most, if not all, of any short-term upside bursts in price.
You can own silver coins in monetary form against the possibility of a collapse in the financial system and the currency. Don't overdo it, though. And don't get sucked into paying exorbitant premiums thinking you will make up the additional cost when silver goes to the moon.
CONCLUSION
If you see silver as an alternative to fiat currencies, great! Only gold is superior to silver as an alternative to paper or credit. Leave it at that. (also see Is Silver Really Cheap; And Does It Matter?)
Kelsey Williams
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN'T, AND WHO'S RESPONSIBLE FOR IT and ALL HAIL THE FED!