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The $5 Silver Blow-Off Is Now

By David Bond      Printer Friendly Version
Mar 6 2008 9:50AM

Wallace, Idaho – That's right; you heard us. This is the time for $5 silver and $250 gold. Welcome to 2008, where you can buy an ounce of silver for $5, and an ounce of gold for $250 – or thereabouts.

This requires a little backing-in of logic, but consider (this, according to the United Snakes Government, which always tells the truth) the buying power of the 1980 Federal Reserve Note versus the 2008 Federal Reserve Note's buying power. (Actually, we'll be using 2007 figures, as the 2008 numbers, which aren't out yet, will be almost exponentially changing these equations.)

In 1980, the price of a loaf of whole-wheat bread was $0.715; at the end of '07, the same loaf was $1.80. Unleaded gasoline was 71 cents in 1979; it closed out 2007 at $3.12. Electricity in the Seattle area in 1979 cost you $0.014 per kWH; in December it cost $0.08.

Or we can front-end into it this way: silver's “blow-off? price of $48 an ounce in the 1979-1980 cusp translates, in today's dollars, into $137.14. At $20 today, we are a long way from any market “froth.? Ditto gold: that $890 per ounce peak we saw in 1980 dollars is equivalent to $2,542.85 today.

So are we one-third to one-fourth of the distance before silver and gold top? No. Why? What's different? Simply this, and we can only speak knowledgeably of silver, insofar as gold is for Kings and we are a mere Commoner: there aren't 2 billion ounces of silver laying about in United Snakes and other government coffers to be sold below market in order to staunch the run from dollars to real money, as there were in 1980.

Carter, Reagan and Volcker killed the run on the U.S. Fed Note with huge below-market, below-mining-cost silver auctions beginning in earnest in the early 1980s, but actually reaching back to Tricky Dick Nixon's Aug. 15, 1971 abdication of the Bretton Woods international monetary agreement, which took the U.S. off the gold and silver standards and put the screws to European governments' long-held faith that the U.S. dollar would always be redeemable in gold, because it was the world's currency. But it was silver that took the fall for U.S. fiscal debauchery.

The Wall Street Journal's Judy Shelton, in a 5 March 2008 op-ed piece entitled, “It's the Dollar, Stupid,? recalls a quote from Nixon's syphilitic Treasury Secretary, John Connally, telling 29 U.S. trading and banking allies, “It may be our currency, but it's your problem.?

Well, after what? 35 years, the world is rather sick of our currency being its problem. We have few friends and no billions of silver ounces (or thousands of gold ounces) to buy back their loyalties or mess with their currencies anymore. The silver's gone. What knocked silver off its winter-of-'79 perch was not the Hunt brothers. It was the huge gob of “surplus? silver the U.S. government had extorted from war-torn Europe and its own mining industry it suddenly flooded the markets with. That, and some fancy footwork by the CFTC, in cahoots with the trading houses who were terminally short silver, of the trading rules on the NYMEX, abolishing all but liquidation-only trading.

But we digress. What's different between 2008 and 1980 is that the above-described bag of tricks the Nixon-Carter-Reagan crowd were able to hurl at the silver market back then is exhausted now. There is nothing left of it but whole cloth. So when you see silver get to $137/ounce (in 2007-equivalent dollars, whatever those will be) do not fear a 1980-style blow-off. It will, at that point, be just getting warmed up.

This is sad to write. We rather liked things the way they were, or even are. We liked a modicum of predictability in our financial affairs. We liked going to the grocery store every week knowing, within seasonal variations, that the $20 bill we'd brought last week would get us pretty much the same stuff today. But this is not the way of the future. Silver is no get-rich-quick scheme, any more than gold. But it will keep us even with the perfidies ahead, and that is no mean feat.

David Bond



Editor of the The Silver Valley Mining Journal