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Doctor Dinero
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email: thedoctordinero@yahoo.com
September
13, 2004
Now back to some more fundamental
analysis of the precious metal markets, primarily with regards
to Silver (my personal favorite). Performing the similar analysis
that I did with gold in "An Analysis of Gold Price versus
Money Supply" (One of my first articles, here),
you can clearly see that silver has reached greater than $145
an ounce (look below), adjusting for the inflation of Federal
Reserve Notes. This spike was caused by the lack of confidence
in the US dollar and the Hunts attempt to corner the silver market.
A second way to look at the
price of silver would be to adjust historical values 1960, and
inflate it to today's FRNs. When performing this analysis we
get a silver price of $21.40 per ounce. (This small number was
a disappointment to my greedy. split personality.) However, during
the 60s, the US had a huge reserve of silver, billion plus oz
of reserves. Today, the US only has a minimal reserve of Strategic
Silver. These supply and demand factors would suggest a silver
price far higher than $21.40 per ounce.
Another simplistic way to establish
a value for silver is with respect to its gold ratio. The following
chart plots Platinum, Palladium, Rhodium, and Silver's metal
to gold ratio. Should gold reach its target price of $2500 per
ounce then the price of silver, at its historic high ratio, would
be $179 per ounce. Palladium and Rhodium have historically been
much more volatile in their prices, should Silver exhibit the
same maximum variability, then the price would be $378 per ounce.
The table below shows the variability
data of these four metals. All the precious metals, except silver
bound gold (they are sometimes more valuable than gold, other
times less). With silver's limited stockpiles, and a
supply and demand imbalance, it will be feasible for the
Silver price to exceed that of gold. (This analysis was to satisfy
my greedy split personality.) Hi Ho Silver!
When charting the above information
into a Pareto analysis (below), I noticed that the distribution
is heavily waited to their low ends. (In this beauty pageant,
Gold wants to be the most valuable). It might be a prudent move
to transition from silver to gold once it reaches the high end
of the ratio.
However, all this talk is about
which great investment (precious metals not FRNs, stocks, bonds)
to be in. Overall, I plan to stay into precious metals until
the price of gold exceeds the theoretical price of gold with
respects to FRNs. (I will write update editorials randomly).
I am starting to get the feeling that gold will never reach my
sell point, with potential large bailouts on the horizon (can
you say Freddie, Fannie, or JP, or .name your large institution),
the Federal Reserve will hyper-inflate the currency, causing
the theoretical price of gold to infinity and beyond. (Great,
now I can't get the picture of Buzz Lighting out of my head.)
You the reader must decide
if any information within this article is worthwhile. I do not
guarantee that I am right and all the above information is for
entertainment purposes only. I write these articles to solidify
my own thinking and hope to grow the Gold and Silver Bug community.
(And it's the Shrinks orders.)
Cheers
September 11, 2004
Doctor Dinero
Archives
email:
thedoctordinero@yahoo.com
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Inc
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