Although I agree with most of what he says, I would of course put it in different terms – for instance Mr. Arends says, "Gold is volatile. It's hard to value." and I would say, "The US Dollar is volatile. It's hard to value." Both statements are equivalent, depending only on whether you are valuing gold in terms of dollars, or dollars in terms of gold.

But the question is, which viewpoint will history record as the "right" one? On this score, I am completely convinced that he is wrong. There is NO example of ANY fiat money system EVER, in all of human history, that has not self-destructed. So in spite of his claim (in part one) that "It (gold) has a 'This time is different' story line", he is the one who is arguing that "it is different this time", not those who see gold as real money.

Of course the dollar can rally in value, even for decades at a time. But in the end, it will disappear like all the other attempts at a centrally planned and controlled currency, for the same reasons that centrally planned economies fail. When people are free to use anything they want for money, gold always seems to prevail. I don't think this time will be any different.

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.

For the most part, commodities have stayed reasonably priced. Crude oil, gasoline, silver and platinum are all trading in the ranges they have occupied for several years. And even uranium, which saw a tremendous spike in 2007, has returned to about 3 grams per pound.

There are lots of opportunities out there. Just be careful to look at the true value of what you're buying – as measured in gold – and don't be fooled by the inflating dollar prices that are sure to follow in the wake of the monetary stimulus that is likely to be unleashed in the coming months.

ps – There are problems with the automatically generated charts for CAD, Copper and Wheat. I am working to update these so they will display properly. I'll let you know when they're working again. Thanks for your understanding!

This series is similar in appearance to the long term DJIA, but with less volatility.  This makes sense, as stocks tend to follow in the footsteps of the overall economy.  But the Dow has it's own sense of timing, peaking about 4 years before the GDP in the 60s, and falling much further during the 70s, then rising over 36 times in value from 1980 to 1999, while the GDP rose a little over 9 times from it's low.  Once again, the Dow peaked first, in 1999, while the GDP kept climbing until 2001.

The last 6 years have been devestating, with the GDP falling by 47% from 1,222 Gg in the Spring of 2001 to 647 Gg  2007.

From 1904 to 1929 the Dow grew 12 times in value from 47 to 568 gold grams, then gave up 89% of that gain, ending at 64 grams in 1933.  In the next phase, the Dow grew almost 14 times, to 893 grams in 1966.  This was followed by a long decline, losing almost 96% of it's value, finally bottoming around 37 grams in 1980.  Then the next bull market emerged, growing over 37 times to 1,393 gold grams in 1999.  The 8 years following this all time peak have been a downward march, representing a loss of almost 56% to the August 31, 2007 close of 618.262 gold grams.

What will the future hold?  I would love to hear comments from technicians on this topic… But if the last two market cycles are any guide, I suspect we will see the Dow trading below 200 gold grams sometime in the next 5 to 10 years, and it may not be until around 2035 that a new high is made.

There are many roads that could lead to the 200 gram level; the Dow could move sideways as the value of the dollar shrinks, or the Dow could keep making "new highs" in terms of a plummeting dollar, or the dollar could stabilize or even strengthen while the Dow collapses in nominal terms.

But if your goal is to build your real wealth, the key is to keep your eye on the ball: investing in assets that are growing in gold value, regardless of their price as viewed in the fun-house mirrors of fiat currencies.  The Custom Chart service can help you identify those opportunities, and we will be bringing more tools online in the future as well.