Click to enlarge.
I find an amazingly low correlation between the inflation adjusted level of US Government debt and the inflation adjusted price of silver from 1913 to 2008. Check out that flat trend line and the r-squared value in red.
I chose silver over gold because the price of silver has not been "price controlled" during the period and both silver and gold were thought of as money.
I chose to adjust each axis for inflation so as to both spread the data out more evenly and show silver's typical price over the last century.
If this chart is any indicator, those betting on silver based on our debt situation may become extremely disappointed at some point.
This chart was inspired by Dollar Death $piral and the thought provoking charts within the US Debt vs. Gold Price linear regression post.
See Also:
Interesting Gold vs. Debt Trend Analysis
Source Data:
USGS: Historical Mineral Statistics
Kitco: Silver
TreasuryDirect: Historical Debt Outstanding – Annual
TreasuryDirect: Debt to the Penny
BLS: CPI
Wow, you've been busy this year already!
ReplyDeleteI don't remember when silver was demonetized officially (link to dollar), but 1964 was the last time it was used in US coinage.
The big spike in 1980 had two causes: high inflation and the Hunt brothers attempt to corner the market.
The question in my mind now is whether silver is being remonetized now by the banks shorts getting squeezed out. Mexico has had several recent attempts to remonetize silver and I think China had a silver standard well into the 20th century.
Very interesting but we need another axis with historical factors. I am well aware of trend line regression analysis but it only holds in a closed system. The system is now wide open vs prior times. Still, either the metals are gonna get pummeled or the dollar will be crap. I imagine the buck to make it.
ReplyDeleteMr Slippery,
ReplyDelete"I don't remember when silver was demonetized officially (link to dollar), but 1964 was the last time it was used in US coinage."
Gold Standard
In 1857 the final crisis of the free banking era of international finance began, as American banks suspended payment in silver, rippling through the very young international financial system of central banks. In the United States this collapse was a contributory factor in the American Civil War, and in 1861 the US government suspended payment in gold and silver, effectively ending the attempts to form a silver standard basis for the dollar. Through the 1860–1871 period various attempts to resurrect bi-metallic standards were made, including one based on the gold and silver franc, however, with the rapid influx of silver from new deposits, the expectation of scarcity of silver ended.
GYSC,
ReplyDeleteAt these prices, the metals could get pummeled and the dollar could be crap.
It isn't like one made out like a bandit hoarding cash from 1980 to 2000. Just saying.
I'm seeing r^2=0.00000
ReplyDeleteIs that possible?
If so, the dataset is a keeper!
- jus me
Looking at wikipedia for r^2, it appears it's always zero through
ReplyDeleteA flat line through the average value
jus me,
ReplyDeleteThere was some movement in that 6th digit past the decimal point had I bothered to display it, lol.
The r-squared value did not need to be zero and might not stay zero. It did amuse me to see all those zeroes though!
The fear of a debt default could cause the rise in the inflation adjusted national debt to cause a similar rise in the inflation adjusted price of silver over the long-term. Then there would be a positive correlation.
That's my thinking anyway.
The key here is that the line was almost absolutely flat. That means the inflation adjusted price of silver has not risen at all over the years (or fallen) no matter what our inflation adjusted national debt has done (at least so far). That's why there's no correlation.
Had the inflation adjusted price of silver risen over the years then there would have been a positive correlation between the two. That would not necessarily show causation though. It could have simply been a coincidence.
I also want to make this clear.
ReplyDeleteThat flat red line is not the average value. It is the trend between the two data series. Nothing required it to be flat.
Here's the actual formula.
ReplyDeletey = -0.00425x + 10.25947
It is extremely flat but not completely flat.
Some European states may seize private pensions:
ReplyDeletehttp://www.csmonitor.com/Business/The-Adam-Smith-Institute-Blog/2011/0102/European-nations-begin-seizing-private-pensions
Now, if you lived in a country which might either seize your accounts and/or switch back to the old currency at an unflattering rate, would you consider gold and silver buried in the back yard?
I have no data on European metal sales. Are they surging?
At least Americans have the option of gold, silver, or LEAD.
Or like Mark, are they stocking up on toilet paper?
Problem 1: no back yard to bury metals in. 2: they are not allowed to have guns. 3: some of them use bidets, so can't stock up on toilet paper.
I still may sell my silver. I bought some at around 19. Now is probably enough to make a quick buck and be done.
ReplyDelete"A potential trend-change could be indicated by the 14% drop in US gold coin sales in 2010, even as sales of silver ones rose by 20%. In December, however, sales of both yellow and white metal coins fell sharply.
ReplyDeleteChalking it (the drop in sales) up to statistical and year-end “variations” may not be enough, this time around. Sixty thousand gold coins sold in December (as against 231,500 in December of 2009) may be more indicative of the waning appetite for safe-haven protection in the States. Other mints however, (Austria’s among them) also reported lower 2010 demand as that (the crisis) which was supposed to drag the world into the abyss in late 2009 failed to show up to the party last year."
From Kitco...sounds like Europe isn't selling many coins now. That theory can be put to rest for a while.
Anonymous,
ReplyDeleteThe financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. - Alan Greenspan (1966)
Is it safe to buy silver at 3x its inflation adjusted average to protect against the government possibly taking 2/3rds?
Maybe. Maybe not. Sigh.
No-win situation
One more thought.
ReplyDeleteI still may sell my silver. I bought some at around 19. Now is probably enough to make a quick buck and be done.
I find it interesting that our ratios are about the same.
I went from about $6.80 to $10+. I'd have to look at the numbers again to be sure but the gain was just over 50% (counting transaction costs for physical) when I decided it was good enough.
Who knows how many generations of these 50% gains can play out, but it will get "exponentially" more difficult to keep the streak alive.