CURRENT PRICE OF SILVER $50: Based On The Historic Oil-Silver Ratio

The current price of silver should be $50 an ounce, based on the historic 1960’s oil-silver ratio.  Unfortunately, this is not the case as the world has siphoned the majority of its wealth into the highly leveraged financial paper industry… one that has no future.

When the world was based more on a “Physical Economy”, and not the current Financial-Derivatives Market, the price of silver (and gold for that matter) was closely tied to the price of oil.  This can been seen in the chart below:

Silver vs Oil Price & Ratio 1961-1970

With the huge price volatility in the current energy markets, very few people realize the price of oil remained unchanged for a decade in the 1960’s.  The only volatility experienced in the oil market is when the price of oil fell from $1.90 a barrel in 1961 to $1.80 from 1962-1970.  Basically, the world experienced ample oil supplies allowing for long-term contracts set at a single price of many years.

During the 1960’s, silver was still used as official currency in the United States.  After Lyndon Johnson signed the 1965 Coinage Act removing silver from circulation, the price of silver was actually higher than a barrel of oil:

Oil vs Silver Price

(1966)  Oil = $1.80 vs Silver = $1.29

(1967) Oil = $1.80 vs Silver = $2.06

(1968) Oil = $1.80 vs Silver = $1.96

(1969) Oil = $1.80 vs Silver = $1.81

So, for a brief period, the Oil-Silver ratio was below one at 0.9/1 in 1967 and 1968.  Amazingly, an ounce of silver could buy a little more than a barrel of oil during these three years.  The overall average Oil-Silver ratio for the entire 1960’s decade was 1.3/1.  This was at a time when silver was used as real money in the United States.

After U.S. oil production peaked in 1970, long-term oil contracts were over for good.  Furthermore, the Arab oil embargo was an additional factor that pushed the price of oil from $2.24 a barrel in 1971 to $11.58 a barrel in 1974.  This also had a profound impact on the price of silver as it jumped from $1.39 in 1971 to $4.39 in 1974.

Silver vs Oil Price & Ratio 1971-1980

The Oil-Silver ratio (in RED) increased to 3.0/1 in 1977 as the price of oil increased to $13.92 a barrel while the price of silver traded at an average $4.71 for the year.  It wasn’t until 1979, did the Oil-Silver ratio fall back towards the 1960’s average hitting 1.5/1 as the price of silver skyrocketed to $21.79 compared to $31.61 for a barrel of oil.

NOTE:  all these figures are average prices for the year.

If you ask most people why the price of silver reached nearly $50 in January 1980, they will say it was due to the Hunts trying to corner the silver market.  As I stated in previous articles on this same subject matter… WHO CORNERED THE OIL & GOLD MARKET???

I mean, how on earth did the price of oil increase to an average high of $36 in 1980 up from $2.24 in 1971, while gold averaged $612 versus $40.80 during the same time period??  No one ever asks that question.  The price of silver increased substantially during the 1970’s decade to keep up with oil price inflation.

Sure, the Hunts were buying a lot of silver as an inflation hedge on their Libyan oil profits, but much of the gains in silver came at the latter part of the decade when many large investors and institutions came into the silver market.

Regardless, the overall Oil-Silver ratio was 2.1/1 for the 1970’s decade… a bit higher than the 1.3/1 ratio during the 1960’s decade.  However, we must remember the silver spike in 1979 to an average of $21.79 was not a speculative anomaly, but rather the market’s attempt to value silver more to its historic 1960’s oil-silver ratio.

The Highly Leveraged Paper Finance-Derivative Market Destroyed The Oil-Silver Ratio

In order to keep the faith in the world’s fiat monetary system, investors wealth was siphoned into a highly leveraged financial-derivatives market.  This impacted not only the value of the precious metals, but also the entire commodities market as well.  Basically, Dollars invested into a Digital Paper Financial Market, were Dollars not invested into hard assets such as precious metals and commodities.

This had a profound impact on the Oil-Silver ratio.  This next chart shows the Oil-Silver ratio from 2000-2014:

Silver vs Oil Price & Ratio 2000-2014 NEW

As we can see, the Oil-Silver ratio increased from 5.8/1 in 2000 to a peak of 7.5/1 in 2005.  It wasn’t until 2011, when silver nearly reached $50 did the Oil-Silver ratio fall to a low of 3.2/1 for the 2000-2014 period.  This was still much higher than either the 1/3/1 1960’s average ratio or the 2.1/1 for the 1970’s average ratio.

Of course, silver reaching $49 in 2011 was touted as a BLOW-OFF TOP by the typical paper traders.  It took a record 5 consecutive silver margin hikes by the CME Group to finally get silver down in the mid $30 range.

To this day, I never believed $50 silver reached in 2011 was a SPECULATIVE SPIKE, but rather a market returning to a more physical-based price mechanism.  Unfortunately, the highly leveraged paper markets still control the valuations of ALL ASSETS.  Fortunately, this will not continue forever.

If we look at the next two charts, we can plainly see where the majority of Americans have placed their wealth.  In 1960, the total value of the U.S. Retirement Market was $86.7 billion.  This increased to $236 billion in 1970:

U.S. Retirement Plan Assets 1950-1997

By the following decade, the total U.S. Retirement Market increased more than four times in value to over $1 trillion in 1980.  You can find this data on the EBRI pdf.  Furthermore, if we look the most recent ICI – Investment Company Institute’s Q2 2014 update, we have the following:

U.S. Retirement market Q2 2014

Total U.S. Retirement Market assets increased 24 times from $1 trillion in 1980 to $24 trillion in Q2 2014.  Now, lets compare these figures to price of gold and silver.

1980 vs 2014 U.S. Retirement Assets vs. Gold & Silver

1980 U.S. Retirement Market = $1 trillion

1980 Average Price of Gold = $612

1980 Average Price of Silver = $16.39

2014 U.S. Retirement Market = $24 trillion

2014 Average Price of Gold = $1,270

2014 Average Price of Silver = $19.23

Since 1980, the value of the U.S. Retirement Market increased 24 times, while gold doubled from $612 to $1,270 and silver increased a little less than three dollars from $16.39 to $19.23.  Again, these are average annual prices.  Here we can see that while gold and silver are both undervalued severely compared to the gains in the U.S. Retirement Market, silver hasn’t budged much at all…. after 34 years.

If were to take the 1960’s average Oil-Silver ratio of 1.3/1 and see how it would impact the price of silver from 2000-2014, this would be the result:

Silver vs Oil Price 2000-2014 Basd on 1960's Avg

According to the 1960’s Oil-Silver ratio of 1.3/1, the price of silver would have peaked in 2011 at $85.58, and would still be $50 with the current price of a barrel of oil at $64.  Even if we were to use the 1970’s average Oil-Silver ratio of 2.1/1, that would give us a current price of silver at $30… almost double than what it is today.

The U.S. & Global Retirement Markets are being propped up by the Fed and foreign central banks.  Without this continued manipulation, the value of most paper assets would implode.  Furthermore, the coming peak of global oil production will be the final nail in the CENTRAL BANK’S COFFIN.

As the value of the highly leveraged financial-derivatives market heads south in earnest, investors will be forced to move back into hard assets, such as the precious metals and commodities.  This will push the value of these assets up to levels thought unimaginable.

$50 silver is coming… however that will probably be just the beginning stage of a much higher price in the future.

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27 Comments on "CURRENT PRICE OF SILVER $50: Based On The Historic Oil-Silver Ratio"

  1. Interesting stuff thanks !

    Just a little question, you had not made a single article on energy except this while for a while even if WTI has now dropped below 60 USD, why ?

  2. QUOTE: “As the value of the highly leveraged financial-derivatives market heads south in earnest”

    Ummmmmmmmmm; since when are the PTB going to abandon their highly lucrative Paper Silver market “in earnest” when they can simply mine multiple years of Paper Silver per month with just a few key strokes on the computer and dump it all onto the market.

    • Paper Silver,

      It all has to do with PEAK OIL. The current Fiat-Monetary-Financial-Derivative System is so leverage, any one of a dozen black swans can take it down. However, if this does not… PEAK OIL will destroy the system. With the current low price of oil… it may happen sooner than later.

      steve

  3. silver/oil will go to 3 and beyond as silver is now as rare as gold in monetary form.

  4. lastmanstanding | December 11, 2014 at 6:38 pm | Reply

    Sweet. I just went back and re-read “The Forces That Will Force Silver Over $100…my favorite srsrocco article.

    You guys can debate all the graphs, all the guru’s, all the fluff, all the bs that you want. Not me. If you read this article, you eventually get to the bottom of the page and there she is…The CAT 797 in all her glory. Read and think about what it takes to clothe, feed, maintain and keep her in the life style that she is accustom to…TO FEED EACH AND EVERY STACK…and she ain’t alone at each and every mine. Again…think about it!

    I have run heavy equipment like this since I was 12…over 40 years ago. Huge JD dually tractors on the farm. 650 series Excavators, D9 dozers, Cat earthmoving pans, Front end loaders, JD motor graders, Haul trucks like the 797, just a bit smaller. These Iron Maidens of incredible imagination and technology burn fuel like there is NO FUCKING TOMORROW!…and now I’m going to whisper so that you really have listen to what I now have to say…silver is only valued at $17 and 37 cents…lmao.

    Take another moment and think about how much energy, tech and TIME it took to revolutionize these monsters, the factories and the industries that make each and every item of the entire process.

    Fuel here in Rockies is roughly $2.70 gal. I put a gal in my truck and drive my 1 ton pickup 14 miles down the road…a 3000+ lb. rig…what a steal as far as energy goes. I was $3.60 a couple months ago…still a steal. So my point is silver at $17 and change is a steal as well. Look at what you are paying for and the incredible value that you get in return. Folks, these are days that will be remembered as the good ole days.

    Here is the bottom line…It can’t get much cheaper before it becomes non-existent or just plain not available at any price. I personally think that when fuel turns around, you’ll be lucky to get if for less than $5 a gallon. I actually think $7.50 gal. is more realistic…I don’t have a link, or any facts other than my gut. Most Americans just have no fucking idea what a gallon of fuel or and oz. of silver represents.

    But they will. Their lives will be beyond upside down overnight. As will mine. Hope I can survive to save my family. Hope you all can as well.

    “don’t go down without one helluva fight”

  5. lastmanstanding | December 12, 2014 at 7:25 am | Reply

    Nice you tube link…If you have ever run HE you should know that this is propaganda brother. Pure bs from Kent, the “Global Application Specialist” lmao!!! No smart contractor with any skin in the game buys one of these things. There is one sitting in the neighborhood. Key word “sitting”…and it has been for months…no one has any money to develop anything. He bought it before CAT came out with their new payment program and is in big shit, not that it would have mattered. Hoping to land that next “gub contract”…you know, that next “shovel ready” project, next “superfund” clean up or the next “bridge to nowhere.”

    CAT will “sell” you one of these…NO money down, 1% interest, no payment during the slow months. (Usually Dec, Jan, Feb)…They are no different than the banks. The continue on by having a shitload of debt on their bottom line…and call it assets. But , hey it must be ok when you see all the corps, politicians, us gub doing it.

    25% fuel savings…nfw. I have not run this particular machine but have run brand new state of the art stuff…a lot. The amount of work that it does is really beyond amazing but it still burns the same amount of fuel.

    This is just another last ditch effort by the corps to keep the debt and death game going. Boeing, Lockheed, Hughes, etc. destroy things…CAT, KBR, Halliburton rebuild it.

    It works for them.

  6. How does the fact that the vast majority of silver is mined as a byproduct (rather than from a primary silver mine) influence this? Or does that not matter at all?

  7. Experts expect another bad year for PM.So the Money burning goes on.Especially for the miner stock holders.

  8. Just wanted to chip in to say that the current CFTC report has turned neutral to bearish. Over the last couple of years, it has a 90+% accuracy of predicting medium term prices.

  9. I think it is long past time for people to stop using the paper silver price as a bench mark for physical silver.
    Paper silver and real silver are not the same thing and should be priced differently. Try the world economy divided by the total ounces of .999 fine or better above ground silver supplies. The last number I heard was 1 billion ounces of silver bullion. Dave Morgan, Nick Barisheff and Eric Sprott seem to think there is something to that number but it is a little out of date by now.

  10. Hi!, Patrons Of SRSROCCO Report Et. Al.:
    My take on the Commitment Of Traders Report regards silver is that it’s an attempt by such entities like The Silver Users Association to keep the price of their raw product for manufacturing as low as they can which increases their down line profits on their sales of manufactured products made of silver. It’s a form of price suppression but not value suppression is what it appears to be SRSrocco’s point in their article? Therefore, we have $50 silver selling for somewhere above a mere $17 which is highly unfair for silver investors but not for those who manufacture items made from silver including various Mints. On the value front a 1 troy oz. of industrial 999.99 silver can be drawn into a fine wire some 50 miles in length for use in all the electronics industries worldwide to carry electrons from point A to point B. Silver selling for $50 per troy oz. would be worth in this instance $1 per mile instead of today’s approximately 34 cents per mile but the value of its’ usages remains the same at any price doesn’t it? Today the bargains are in the end users’ court and not the investors’ court but that can change is what the SRSrocco Report is telling me in my opinion.

    RUSS SMITH, CA. (One Of Our Broke, Fiat Money Corrupt States)
    resmith1942@gmail.com

  11. If oïl continue to crash silver will be valued as in the sixties at about 15 bucks an ounce…

    • lastmanstanding | December 13, 2014 at 7:23 am | Reply

      …and a loaf of bread will be a nickel.

      The price of everything must follow in the real world RD…everything.

  12. Peak oil refers to the maximum rate at which oil can be pumped out of the ground, that maximum being determined by the geology of oil deposits. The price of oil on the other hand reflects the balance between supply of and demand for oil. If marginal supply is larger than marginal demand, oil prices will fall. If marginal demand exceeds marginal supply, oil prices rise.

    The recent fall of oil prices despite peaking oil production means that demand for oil is falling at a faster rate than the supply of oil is falling due to peaking oil production.

    Interest rates, which are the price of loans, are at historic lows. This means that the demand for loans (in the real economy) is much lower than the supply of loans.

    Falling oil prices and falling interest rates are a strong indicator that we could be at the beginning of a long deflationary period. We had four decades of inflation starting in 1970. We might be facing now decades of falling prices and a contracting economy. Inflation will return again, but not before oil production starts to decline faster than the world wide demand for it.

    Silver prices will rise eventually, but please do not assume that this will have to happen within the next few years. The historical changes we are witnessing take decades to unfold.

    • “The recent fall of oil prices despite peaking oil production means that demand for oil is falling at a faster rate than the supply of oil is falling due to peaking oil production.”

      No. It simply means the derivative markets, where the oil price is currently set, are not reliable price discovery mechanisms.

      • Markus,

        Well said. Totally agree with your statement. Furthermore, Robert Happek doesn’t consider the huge FED STIMULUS that has allowed this extra SHALE OIL SUPPLY to come on the market.

        In addition, Robert stated the following: “Interest rates, which are the price of loans, are at historic lows. This means that the demand for loans (in the real economy) is much lower than the supply of loans.”

        For some strange reason Robert fails to understand that the entire INTEREST RATE MARKET is manipulated lower by the FED and huge amount of INTEREST RATE SWAPS (100’s of Trillions). To say that demand for loans in a real economy is much lower than the supply totally disregards this understanding.

        To be honest, I am quite surprised Robert doesn’t see the real problem here. THERE IS NO REAL ECONOMY OR FINANCIAL MARKET.

        steve

  13. My words.PM are drivent to Inflation.And in the moment everything goes back.The Money which is printed circulates in the financial industry.It’ not coming into the real economy.In Europe all these printing and safety programes where programes to help the banksters to balance their bilances.

    The greek Support was in truth the rescue of french Banks.You can see what happens now in russian, without Support the capital flees away.So the bankster will be supported till the end of time.

  14. As it has been brought up , there needs to be an institution formally established which only accepts physical gold and silver while determining all other trades on the actual to be worthless. There seems to be enough sensible heads to help see this grossly overdue dynamic to it’s completion. Butler , Morgan , Sprott , Rule , Sinclair to name a few.

    Why are we waiting any longer for this to become reality.

    The ones who hold the physical gold and silver are the callers of its true value , not the outsiders who scheme ways to artificially push them around.

    And now with the CME and their felonious ways. The Crime Made Easy boys should all be chained together and paraded out for all to see what real criminals look like !

  15. Steve,
    This is a great amount of commodity pricing research on your part. I am a bit confused, however, as you switch between the Silver/Oil Ratio and the Oil/Silver Ratio throughout the article. How can the Silver/Oil ratio be 1.2/1 from 1961 to 1970 (first graph) and the Oil/Silver Ratio be 1.3/1 for “the entire 1960’s decade”. Your second graph mentions both the Silver/Oil ratio and the Oil/Silver ratio and think it must
    be the latter in this case. Thank you for clarifying this when you have an opportunity.

    • Bob,

      When I wrote the first article, I incorrectly labeled the charts as SILVER-OIL ratio, which in fact they should have been stated as an OIL-SILVER ratio. Basically, the price of oil is divided by the price of silver. I thought I had corrected this in the present article. Sorry.

      Anyhow, there was probably a rounding ERROR that changed it from 1.3 to 1.2 in the two different charts. This is the downfall of not being able to afford a professional editor. Regardless, the OIL-SILVER Ratio increased in the next decade and significantly in the past 15 years.

      I blame the fall of the OIL-SILVER RATIO to the BRANWASHING of Americans in putting their hard-earned money into a Paper Retirement Ponzi scheme rather than physical assets.

      The great transfer of wealth into physical assets is coming and Americans will probably be one of the last to know.

      steve

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