The only conclusion we can make from the response to lower prices by the buyers of physical gold and silver is that "bad" money is being converted into "good" money because the perception is that gold and silver as good money are significantly undervalued in relation to paper dollars issued by the government and currently printed by the Fed at the rate of $85 billion per month, or a little over $1 trillion for all of 2013.
The question is, at what price for gold and silver would investors stop converting fiat paper currency into physical metal? If we could somehow figure out the answer to that question, we could benchmark what kind of returns can be made from investing in gold and silver right now.
One way to do this would be to measure the intrinsic value of 1 oz. of gold in relation to the ongoing devaluation of the U.S. dollar. At its price peak in 1980, gold hit $875. If we use just the Government measure of CPI over that time period of 3% -- unarguably a conservative method of measuring the amount the dollar has been devalued since then -- the current implied price of gold in relation to that measured rate of inflation would be $2350/oz. The gold/silver ratio in 1980 at the peak was 17.5. Using that ratio to derive an implied price of silver yields $134/oz for silver.
In other words, currently the price of gold is undervalued by $900, or 62%, and silver is undervalued by 570%.
The question is, at what price for gold and silver would investors stop converting fiat paper currency into physical metal? If we could somehow figure out the answer to that question, we could benchmark what kind of returns can be made from investing in gold and silver right now.
One way to do this would be to measure the intrinsic value of 1 oz. of gold in relation to the ongoing devaluation of the U.S. dollar. At its price peak in 1980, gold hit $875. If we use just the Government measure of CPI over that time period of 3% -- unarguably a conservative method of measuring the amount the dollar has been devalued since then -- the current implied price of gold in relation to that measured rate of inflation would be $2350/oz. The gold/silver ratio in 1980 at the peak was 17.5. Using that ratio to derive an implied price of silver yields $134/oz for silver.
In other words, currently the price of gold is undervalued by $900, or 62%, and silver is undervalued by 570%.
More information can be found online at http://www.goldbullionadvisors.com
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