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Last week, we attended a webinar organized by GoldCore (a trusted precious metals service since 2003) in which global silver expert David Morgan, the editor of the respected precious metals newsletter The Morgan Report, gave a guest presentation. This article presents the highlights of the seminar with regard to the silver (NYSEARCA:SLV) price outlook for 2013.

Silver's bigger picture

David Morgan presented his outlook for the silver price in 2013, kicking off with two long term silver price charts, both adjusted for inflation. The first of the two charts is based on the CPI as measured by the US government. The chart shows the peak price of silver in 1980 (adjusted for today's inflation) which is $125. The upside potential for silver is clear. (Chart courtesy ShareLynx.com.)

Now it is often mentioned that silver touched $50 in 2011, speculating that it has passed its peak in the current bull market. The matter of the fact is that it was a one day event, and it happened only in the futures market. In the physical market for instance, there was a "bid back" situation, which means the buy / sell spread was very large (dealers were buying physical silver at $35 an ounce and selling at $50). Moreover, the fact that it took only one day, "does not make the market".

(click to enlarge)

When looking at the same chart taking the SGS inflation into account, we see a totally different picture. The SGS inflation uses the same calculation methodology as in 1980 and is calculated by Shadowstats.com. Obviously the government has changed their calculation methodology over the years. The SGS inflation adjusted chart makes the picture even more extreme. David Morgan explains that a move from today's $33 to $100 would be a threefold move up, it is still significantly low compared to the historic peak. (Chart courtesy ShareLynx.com.)

(click to enlarge)

Still, these prices are rather irrelevant as the price of precious metals reflects the value of currencies. In the extreme scenario where an infinite amount of money would be printed, the price of the metals could go to infinity (obviously a theoretical example). Instead, it makes more sense to look at the long term trend which is clearly up. David Morgan used several charts in that respect:

  • The long term silver price is rising and keeps on accelerating in its move up.
  • The gold to silver ratio is in a long term downtrend (which is in favor of silver). Silver has been outperforming gold (NYSEARCA:GLD) over the past decade.
  • Expectations remain that silver will continue to outperform gold. The current gold to silver ratio of 50 to 1 is expected to turn to 16 to 1, which is the historic average of the monetary ratio. Here it gets interesting. It makes sense to look at the ratio from the perspective of metals in the ground. The ratio becomes then 7 to 1. David Morgan does not rule out that a ratio close to that will be possible at the peak.
  • Silver appreciates in ALL currencies, no matter if there are temporarily large increases or decreases in given currencies.

The long term silver price in all major currencies is shown in the following graph (courtesy of Silverprice.org). Mark O'Byrne shows the idea that silver is a store of wealth based on two examples:

  • In 2008, while the financial crisis was raging, Sterling was under bigger pressure than the other currencies. You see on the graph that silver lost value in all currencies, except in Sterling.
  • Likewise in 2011, the Indian Rupee came under high pressure. While the silver price had declined against all currencies, it did not in terms of Indian Rupees.

(click to enlarge)

Outlook for the price of silver in 2013

Paper currencies are losing value over time, and today even more significantly than ever before. There is a probability that cash will become trash, which is against the general belief that cash is king (at least, in the current environment).

What is the bottom line for the outlook of the silver price in 2013? David Morgan expects 2013 to be a bullish year, in which a new leg up will start. It will probably not go into an acceleration phase (like in the first part of 2011). It is reasonable to expect a rise of 10 to 20% in gold, and good 30% in silver.

Questions & Answers

During the Q&A session, some interesting points were made related to silver's outlook in 2013.

  • Question: When will silver cross $50?
    Answer from David Morgan: It is likely to happen in 2013. The next leg up is starting right now, although we probably will not see a substantial acceleration in the leg up. Obviously, as soon as $50 is crossed an acceleration can be expected. It remains difficult to forecast how fast the acceleration will be.
  • Question: How much is silver currently undervalued (compared to the money supply)?
    Answer from David Morgan: One of the realistic approaches would value 700 dollar an ounce. Source: a recent video from professor Ryan Jordan.
  • Question: I keep my silver in the US. Should I also store it outside the US?
    Answer from Mark O'Byrne: We advise clients not to store bullion in the US. In fact, Switzerland remains the safest place in the world to store bullion.
Source: Silver Outlook For 2013