Here’s What “Stupid Cheap” Looks Like: The Inflation-Adjusted Silver Price


by Jeff Clark, GoldSilver:
A lot of readers liked the inflation-adjusted gold price chart we highlighted last month. It showed how dramatically undervalued it is, as well as how high it could reach when using the 1980 inflation formula.

Many of you asked to see the same chart in silver. Well, we aim to please. And what you’ll see below shows that silver’s undervaluation is even greater than gold’s.

Why We Must Adjust For Inflation

When trying to put the price of a particular asset into perspective, you have to adjust it for inflation. If you don’t, the long-term view is distorted and can lead to erroneous conclusions. It’d be akin to preparing your income taxes using 1980 forms.

Here’s a good example… as I pointed out last month, my favorite carton of ice cream sells for the same price as five years ago. But the manufacturer made the container smaller. Is my ice cream really the same price? I get less ice cream than I used to! That’s inflation. And in most cases the inflation is hidden, just like the price on that carton of ice cream.

However, as we also pointed out, there’s a trick to adjusting for inflation, especially the longer the time frame. And the trick is this: inflation measurements have been changed numerous times over the years. The methodology used to calculate the Consumer Price Index (CPI) has undergone at least 14 alterations since 1980. If the yardstick used to account for inflation has been modified that many times, how accurate can that yardstick be over long periods of time? It can’t.

Using the Same Yardstick

I asked John Williams of ShadowStats to give me an apples-to-apples inflation adjustment for silver. Essentially, John inflation-adjusted the price of silver using the 1980 CPI formula.

Here’s what his data show.

If we use the 1980 formula to measure inflation, you can see the current price is near all-time inflation-adjusted lows. In fact, silver is selling below 1970 levels!

You can also see that its 1980 peak would be the equivalent of $606.30 per ounce today. Silver may or may not get that high, but this shows just how great the potential is.

So, not only is silver dramatically undervalued at current prices, its potential upside is enormous. Check this out:

If silver were to match the inflation-adjusted price of $606.30, it would have to rise by 3,575{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}!

Even if silver never approaches this level, it’s clearly undervalued at current prices. It is a Best Buy.

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