Determining the True Inflation Adjusted Silver Price

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 |  Includes: PSLV, SIL, SLV
by: Joseph Brom

Inflation adjusted silver prices are more difficult to calculate due to silver’s volatility. However, knowing the true inflation adjusted gold price ($3604.22) and estimating the gold/silver ratio allows a reasonable estimate. The gold/silver ratio fluctuates wildly from a high of 137 to a low of 15.

Depending on the gold/silver ratio used gives a broad array of inflation adjusted silver prices. The tables below shows the currency/gold ratio and the corresponding silver price using a gold/silver ratio of 40, 25 and 15. The gold/silver ratios of 40, 25, and 15 were chosen because when the gold price equaled the currency/gold ratio in 1983 the gold/silver ratio was 38. In 1979, when the gold price equaled the currency/gold ratio, the gold/silver ratio was 23. Finally, in 1980, when the gold price was 214% higher than the gold/currency ratio the gold/silver ratio was 15.

The reader can choose which ratio to use.

Year Currency/Gold Ratio Gold/Silver Ratio Gold/Silver Ratio Gold/Silver Ratio
40 25 15
2011 $3,604 $90.10 $144.16 $240.27
2012 $4,212 $105.30 $168.48 $280.80
2013 $4,633 $115.83 $185.32 $308.87
2014 $5,096 $127.40 $203.84 $339.73
2015 $5,606 $140.15 $224.24 $373.73
2016 $6,167 $154.18 $246.68 $411.13
2017 $6,783 $169.58 $271.32 $452.20
2018 $7,462 $186.55 $298.48 $497.47
2019 $8,208 $205.20 $328.32 $547.20
2020 $9,029 $225.73 $361.16 $601.93
Click to enlarge

Using the inflation adjusted gold price of $3,604.22 yields and inflation adjusted silver price of between $90 and $240, conservatively $145, depending on which gold/silver ratio is used. Again, since the Federal Reserve Bank’s increases the currency supply on average 11.5% each year. The inflation adjusted silver price will change every year.

The chart illustrates the increase in the currency/gold ratio each year to account for a conservative 10% increase in currency. This yields an inflation adjusted silver price of between $90 and $600 depending on how fast silver prices increase.

If the gold price were to repeat its inflation adjusted manic price of $850, then the inflation adjusted silver prices would change. The table below shows the inflation adjusted mani gold price of 1980 and the corresponding silver price using a gold/silver ratio of 40, 25, and 15. Again the reader can choose which ratio to use.

Year Manic Gold Price Gold/Silver ratio Gold/Silver Ratio Gold/Silver Ratio
40 25 15
2011 $8,194 $204.85 $327.76 $543.27
2012 $9,013 $225.33 $360.52 $600.87
2013 $9,915 $247.88 $396.60 $661.00
2014 $10,906 $272.65 $436.24 $727.07
2015 $11,997 $299.93 $479.88 $799.80
2016 $13,197 $329.93 $527.88 $879.80
2017 $14,516 $362.90 $580.64 $967.73
2018 $15,968 $399.20 $638.72 $1,064.53
2019 $17,565 $439.13 $702.60 $1,171.00
2020 $19,321 $483.03 $772.84 $1,288.07
Click to enlarge

In conclusion, the inflation adjusted silver price today is conservatively $145, and the inflation adjusted 1980s high of $50 is $543. Again, these prices will change each year to account for currency inflation. The actual inflation adjusted prices will depend on how fast the silver price increases and could very well reach $400 and $800 on an inflation adjusted basis.

Disclosure: I am long PSLV, CEF, SIL, PHYS.