I realized yesterday that it is easy to calculate the price of an ounce of silver in gold grams if you know the gold-silver ratio (Duh!) You just divide the ratio into 31.1035 (the number of grams in an ounce.) And the ratio is well documented throughout much of history. For instance, the website Measuring Worth provides annual values for the gold-silver ratio going back to 1687. I've used this data to create a new long term chart showing the price of silver from 1700 to today, and added it to the Silver chart page.
Silver has historically been both a monetary metal and an industrial metal. Prior to 1872, the prices of both gold and silver were heavily supported by governments worldwide for monetary reasons. Silver has now lost most of it's monetary use and is almost exclusively industrial, unlike gold, which has most of it's above ground supply sitting in the vaults of governments, banks and individuals in the form of bars and coins.
Silver consumption is skyrocketing due to worldwide demand for consumer electronics and power, communications and computing infrastructure, although much of the silver "consumed" in industrial usage is eventually recovered through recycling. On the supply side, most silver production is a side-effect of mining other industrial metals such as copper, zinc and lead. These factors give silver a complex supply-demand picture, and a relatively volatile price when measured in gold, at least since 1872.
It certainly looks like silver is at the low end of it's range at the moment, and headed up. Looking at the "tops" in 1872, 1919 and 1968 it would be tempting to project another top between 2015 and 2020, somewhere north of 1.5 grams per ounce – a potential return of 140% over a 10 year period, given the current silver price of .628 grams.
Stocks are certainly much more volatile, as you can see in the chart of the Dow Jones Industrials. This means the opportunity for larger gains, but also the risk of larger losses. Using similar cyclic logic on the DJIA, seeing bottoms at 1932 and 1980, and tops at 1929, 1966 and 1999, it is again tempting to project the next bottom between 2010 and 2020 somewhere south of 100 grams, with the next top possibly around 2,200 grams but probably not occurring until 2032 or later. With the Dow currently around 370, these would be huge swings – down 75% and back up over 2000%!
Since 1991, silver is up about 80% from .346 to .628 grams per ounce. Over that same period, the Dow is up from about 214 to 370 grams – around 70%. But during those years, the stock index rocketed to 1,400 before falling back to 370. Looking forward, I see support at around 300, 150 and 50. That's a long way down.
For the next 5 to 10 years, I'd much rather be long silver than large cap stocks!
PS – One more thing I neglected to mention… companies can and do go bankrupt. That means their stock can become worthless, wiping out your investment entirely. Zip. Nada. Zilch. Goose-egg.
Even silver mining stocks can and do go belly-up. Physical silver cannot. It will always be one of the highest conductivity metals (both in terms of electricity and heat), it will always take an extremely high polish, and make beautiful jewelry. Its value in gold may rise and fall according to supply and demand, and be influenced by the availability of other alloys and the discovery of other uses, but it will never go to zero. Something to keep in mind in the perilous times ahead.