Recent action in the silver market has been rather astounding. Commonly defined as a risk-on-trade, movements in price of the white metal have defied volatility in other markets. While stocks, bonds and most commodities have not performed poorly since MENA turmoil in February initiated the current state of declining geopolitical certainty, silver is up a whopping 50% in less than 10 weeks.
Many economists, technical analysts and others contend that silver price appreciation of late resembles a bubble and cannot be sustained. They are wrong for one simple reason: Unlike other bubbles which saw massive appreciation in assets that were either new or benefited from newly discovered uses, silver is merely "returning to normal."
Through World Reserve status and economic superiority of the United States for much of the last century, King Dollar erased the general public's memory of silver as money. Just 100 years ago, families in Europe and the United States kept approximately 20% of their wealth in precious metals. Today that number is approaching 1% after bottoming around 0.3% a decade ago, while actual bubbles took place in technology stocks and real estate.
For many thousands of years, gold and silver retained purchasing power significantly higher than they have today. Data is fairly abundant from recent centuries and show daily wages determined in silver from 17th century China to 20th century Europe. They are extremely constant, especially in relation to wages in modern inflationary times. For hundreds of years, low-skilled laborers in China earned four grams of silver per day while European counterparts earned three to five times that. Today a minimum wage worker in the US earns about an ounce of silver per day, down 33% from two months ago.
With the global population at an all-time high, emerging markets rapidly outgrowing more developed ones, and central banks losing fans by the second, how can precious metals be in a bubble when ownership is around 5% of historical levels and clearly rising rapidly?
They're not. We are witnessing the unwinding of a massive bubble in fiat currencies, notably the US dollar.
Disclosure: I am long SLV.