The Price of Silver Has Fluctuated Over the Past 50 Years

The modern era of silver futures trading began in the 1970s. In 1973, COMEX introduced a standardized silver futures contract, which helped to increase liquidity and market participation. The contract specifications, such as the contract size and delivery terms, made it easier for investors to trade silver. Futures contracts allow investors, producers, and consumers to hedge against price fluctuations and speculate on the future price of silver.

After President Richard Nixon took the United States off the gold standard in 1971, the price of silver has experienced significant fluctuations for over 50 years. Following the abandonment of the gold standard in 1971, the price of silver initially remained relatively stable, trading between $1.30 and $1.80 per ounce. So the immediate removal of the US dollar from the gold standard caused silver to jump by approximately 38%.

Economic uncertainty and inflation jump-started a big rally in silver in 1973

From 1973 to 1974 the price of silver began to rise more rapidly, reaching a high of around $6.70 per ounce in 1974. In October 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) imposed an oil embargo against countries that supported Israel during the Yom Kippur War. This led to a sharp increase in oil prices, causing a global energy crisis and economic shock. The US economy experienced a combination of high inflation and slow economic growth, a phenomenon known as stagflation. Inflation rates reached double digits, while the economy stagnated, leading to increased unemployment. The term stagflation is starting to be used more today by economists.

The US stock market experienced a significant decline, with the Dow Jones Industrial Average losing over 45% of its value between January 1973 and December 1974. The political turmoil surrounding the Watergate scandal, which ultimately led to President Nixon’s resignation in August 1974, added to the overall economic uncertainty.

Silver peaked in 1980 at $49.45 per ounce after a huge increase

Leading up to 1980, the price of silver skyrocketed during this period, reaching an all-time high of approximately $49.45 per ounce in January 1980. This surge was largely driven by a combination of geopolitical tensions, high inflation rates, and a significant increase in speculative trading by investors, such as the Hunt brothers.

The Hunt brothers, Nelson Bunker Hunt and William Herbert Hunt were wealthy investors who attempted to corner the silver market in the late 1970s and early 1980s. The Hunt brothers began buying large amounts of silver in 1973, both physically and through futures contracts. They believed that silver was undervalued and that inflation would drive its price higher. The Hunts used their considerable wealth and borrowed heavily to finance their silver purchases. They also invested in silver futures, allowing them to control a larger amount of silver with a smaller upfront investment.

The silver rally in 1980 was stopped by margin requirement increases

As the Hunts continued to buy silver, the price began to rise. This attracted other investors, further driving up the price. By 1979, the Hunt brothers had accumulated an estimated 100 million ounces of silver, equivalent to almost half of the world’s deliverable supply. The Hunts then pushed for even higher silver prices by continuing to buy and take delivery of physical silver, thereby putting pressure on the market. On January 17, 1980, later known as Silver Thursday, the silver price reached a record high of $50.35 per ounce.

The Federal Reserve intervened by raising interest rates and changing margin requirements, making it more expensive for the Hunts to maintain their positions. As a result of the Fed’s actions and changes in market sentiment, the silver price plummeted. Hmmm, margin requirements. There should be no margin requirements if silver was allowed to trade on its supply and demand. So are futures contracts a way to control all markets by the biggest market players? Do the paper markets influence the physical commodity market in unfair ways?

The price of silver declined and stagnated from 1981 to 2000

After the Hunt brothers’ attempt to corner the silver market and the subsequent market collapse in 1980, the price of silver experienced a long period of decline and stagnation from 1981 to 2000. Following the peak in 1980, silver prices dropped sharply. The average annual price fell from $20.63 per ounce in 1980 to $10.52 in 1981. Prices continued to decline, reaching a low of $5.85 in 1985.

Silver prices remained relatively stable during this period, fluctuating between $5 and $7 per ounce. The average annual price was $5.47 in 1986 and $4.82 in 1990. Prices continued to be stagnant, with the average annual price ranging from $4.04 (1991) to $5.19 (1995). Silver did not experience significant price appreciation during this period. The price of silver started to show some signs of recovery in the late 1990s. The average annual price increased from $5.19 in 1996 to $5.54 in 2000. However, prices remained well below the highs seen in 1980.

Throughout these 20 years, silver prices were affected by various factors, including reduced industrial demand, a strong US dollar, and increased global silver production. The market was also influenced by the aftermath of the Hunt brothers’ actions and the subsequent regulatory changes. It wasn’t until the early 2000s that silver prices began to rise significantly once again. Computer programming on Wall Street also became much more prevalent.

Computer programming expands rapidly in the 1980s and markets start to be electronic

In 1965, Bunker Ramo Corporation introduced Telequote, one of the first electronic stock quotation systems, which provided stock prices to brokers over a network. In 1971, the National Association of Securities Dealers Automated Quotations (NASDAQ) was founded as the world’s first electronic stock market. This marked a significant step towards the automation of stock trading. The use of computers in finance expanded rapidly during this decade.

In 1983, the New York Stock Exchange (NYSE) introduced the Designated Order Turnaround (DOT) system, which allowed for electronic order routing. Programmers began developing algorithms for trading, risk management, and portfolio optimization. Electronic trading platforms and online trading have become more prevalent. Physical commodities were now dramatically influenced by computer trading and Wall Street.

Financial derivatives see a big jump in popularity with Wall Street Banks

The use of financial derivatives by Wall Street saw a significant increase in the 1980s and 1990s, driven by several factors such as market deregulation, advancements in technology, and the development of new financial instruments. Derivative usage continued to grow exponentially in the 1990s. The decade saw the introduction of credit default swaps (CDS) in 1994 and the increasing popularity of over-the-counter (OTC) derivatives. In 1998, the Commodity Futures Modernization Act (CFMA) was proposed, which would eventually lead to the deregulation of OTC derivatives trading. The CFMA was passed in 2000, effectively exempting OTC derivatives from regulation. This led to a further boom in the derivatives market.

The price of silver starts the 21st century around $4 per ounce

The 2000s, which brought with them the rise of China and hyper-globalization, saw interest rates cut dramatically and this new regime of next-to-zero funding costs. From 2000 to 2003 the price of silver remained relatively stable, trading between $4 and $5 per ounce. This period was characterized by low inflation rates and a relatively strong US dollar. The War on Terror started in 2003 and was initially said it would cost US taxpayers about $75 billion. Latest estimates have the War on Terror costing over $8 trillion. Interest rates were kept abnormally low during this period coupled with a corrupt financial market eventually for CMOs. The debt housing bubble was inflated quickly and the Wall Street wolves were ready to take advantage of it.

The paper markets led to the Great Financial Crisis in 2008 with derivatives

Then 2008 happened and the subprime mortgage crisis and the birth of quantitative easing. In other words, we saw enormous money printing, abnormally low interest rates, and helicopter money. In the reflation of 2009 through to 2011, this had to have an effect that led to silver’s ascent from $9 to $49 as investors looked for tangible assets versus paper assets. This reflation was to fix what the central bank and Wall Street inflated during the prior years. The price of silver didn’t go up in a straight line of course. 2011 was the second time in the history of silver that it almost reached $50 per ounce.

Central banks of the Far East are looking for more tangible assets

The real sense of inflation, the consensus on Wall Street and not on Main Street is that the government and the central bank are in favor of inflation. The central banking system needs inflation to survive, which is essentially the devaluation of our paper currency. We could very well be in an environment of the Fed saving the markets by mouse-clicking more currency out of thin air. Unfortunately, this will just devalue our buying power significantly and increase overall financial risk because of more leverage and more financial derivatives. We used to be able to export this inflation to other countries in exchange for real goods like appliances and cell phones. With higher interest rates now and with central banks of the Far East being net sellers of US Treasuries since 2014, the environment for US dollars and US debt has changed. Central banks of the Far East are looking for more tangible assets and less US paper debt. Physical gold and silver should see more worldwide demand because of this.

Many different industrial uses for silver have occurred since 2000

Silver is an industrial metal. Over 50% of the silver pulled out of the ground each year is used up in industrial applications. Silver is used in circuit boards, switches, and connectors due to its high electrical conductivity. Silver is a critical component in photovoltaic cells used for solar panels. Silver is used in electrical components, sensors, and connectors in vehicles. Silver’s antimicrobial properties make it useful in medical devices, bandages, and other healthcare products. Silver is used in water filtration systems to prevent bacterial growth. Silver has military applications.

Approximately 20% of silver is used for jewelry and silverware. Silver is used to create various jewelry items, such as rings, necklaces, and bracelets. Silverware, such as cutlery and serving dishes, also accounts for a portion of the demand. Approximately 20% of total silver demand comes from bullion coins, such as the American Silver Eagles. Silver bars and rounds of various sizes are also bought and sold for investment purposes. Silver is still used in some photographic applications, such as X-rays and high-end photography. The demand for silver in this capacity is less than 5% of total silver demand.

Silver is almost half the price that it was at its high point in 1980

Does it surprise anyone that silver today is approximately half the price it was at its high point in 1980 and 2011? How can this be considering the industrial demand and investment demand have increased dramatically in the last 20 years for the uses mentioned above? Could it be that the big Wall Street players through the paper markets support some markets but suppress other markets to support their narrative? Could it be that Wall Street endorses higher stock and housing prices because that feeds the paper markets for banking fees? Does the fiat system that we have require this for people to believe that this paper system of fiat currency benefits them? Will commodity markets ever be able to trade based on their real supply versus demand or will the futures market continue to manipulate markets like silver? Of course, we are questioning this to be the case. As the financial system unravels under the weight of all of this debt, I guess we will see very shortly.

The gold-to-silver ratio right now favors silver

The gold-to-silver ratio also stands today at around 86. That is $2,300 divided by $26.60. This means that one ounce of gold converts into approximately 86 ounces of silver. Historically the mean or average for the gold-to-silver ratio is much lower, approximately more than half of where we are today. It is not unrealistic to see gold continue to do well, and silver on a percentage basis to outperform gold. Historically the price of gold moves first, then the price of silver catches up. This is part of where the silver opportunity comes from and is one of the reasons we are discussing it today. Will silver be the white-hot metal again anytime soon? Judging by the facts discussed in this blog, the answer is yes.

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