A Historical Buying Opportunity In Silver

Includes: SLV
by: Patrick MontesDeOca

By Patrick MontesDeOca

I was digging through some old memorabilia from the 1970s that I found in some old boxes buried in my garage and like most of us, I tend to hold on to things that have some meaningful or sentimental value.

In this particular box I found some silver coins I had managed to keep, dating it back to 1964. When it hit all hit me like a ton of bricks. What has happened to the purchasing power of the dollar and how this has affected my life?

I don't know about you, but personally I have begun to feel that money does not seem to buy the same goods or somehow does not have the same value or purchasing power as it did a few years ago.

I am paying three times more for gasoline in the last 4 years. My Health Insurance premiums have gone through the roof. For a family of five, on the average and depending on the coverage it can run you anywhere between $12,000 to $18,000 in premium costs annually. That is just way out of control with no prospects of getting any better or any cheaper.

And I don't even want to think about my kids' college education costs and living expenses. Or what economic challenges lie ahead for them.

It just does not feel the same. But it certainly feels very much like it did in the early '70s, just before inflation took off and the price of silver and gold exploded to record levels.

What I wanted to do in this article is not review or recommend any structural changes but simply focus on the issue most affecting me personally as I am sure millions of people are feeling the same.

So, I decided to take a very simplistic and basic look at the value of money since the 70s and actually compare it to silver and what the real value of a dollar bill or paper currency is by current standards.

I do this with all respect to Intellectual Academia. But I just want to show in the most simplistic terms the value of money. Or how the value of the dollar has eroded since Nixon came off the gold standard in 1971 and how that is affecting the purchasing power of current dollars.

I took the dime I found minted in 1964, when the silver content was about 90% and compared it against a dollar (paper) bill when the value ratio was one to one. So, a dime was 10% of the value or purchasing power of a dollar at the time when the currency was backed by 90% silver.

These pre-1964 coins are 90% silver and weigh 25 grams per dollar in face value. So 10 dimes, for example, weighed 25 grams when minted.

Theoretically those 10 dimes contain 22.5 grams of silver - or about 0.723 troy ounces - but because they have been circulated, most dealers assume they weigh 0.715 troy ounces.

Or, to look at it another way, if you have $1.40 worth of these coins, that amounts to about one ounce of silver.

Basically all you are really looking at is the price of 0.0715 ounces of silver, but it's interesting to see it in the context of the face value of the dime.

For example, a gallon of gasoline might have cost $2, 10 years ago. That would have been four silver dimes (which were worth about 50 cents each in silver content) or 20 non-silver dimes also equaling $2. Refer to the article published in Seeking Alpha HERE.

Now with gasoline above $4, you would need 40 non-silver dimes. But now only two silver dimes would more than pay for that gallon of gas. These two silver dimes are now worth about $5 in silver content.

By today's standards and using the same example as we look at the chart above, the same dime (silver currency) is worth approximately $3.00 of current dollar value or purchasing power. The same $1.00 Bill (paper currency) is worth $.10 cents of current currency value with no silver content.

That simply means the value of the U.S. dollar paper currency has collapsed more than 90% using the 70s as an example. While the value of $.10 cents with 90% silver content has appreciated approximately 3,000%. That is the real stored value in silver as a precious metal and currency.

The fascinating chart below shows the U.S. dollar purchasing power, 1792-2004. The dotted line represents periods when the dollar was not backed by hard currency.

Another way of looking at it is if you measure inflation by the buying power of the U.S. dollar over time we come to the conclusion that since the 1970s, if you purchased an item for $.10 cents then, the same item costs $.59 cents in 2012 or an annual rate of inflation change of 491.3%.


The CPI-adjusted silver price indicates that silver should be trading at $122 per ounce. In looking at the long-term chart below going back to the 1720s, we can come to the conclusion that silver prices currently trading around $32 per ounce are offering what could be a historical buying opportunity.

Disclosure: I am long PSLV, AG, AGQ, SLW, GDX, GLD.

Additional disclosure: Precious metals products trading Involves significant risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of future results.