- This article explores the possibility that silver prices may be entering a similar period to the 1930s Great Depression Era.
- Various silver price charts reveal that the past decade of silver prices have behaved similar to the decade leading up to the Great Depression.
- A brief discussion on some of the fundamental factors and events centered around currency, similar to now, that were taking place back then.
Silver Prices During the Great Depression
I recently wrote an article about my macro view of silver prices that was informed by technicals and some of the work done by Crescat Capital. In it, I explored the bull case for silver but tried to be equally as respectful of the bear case. I lean bullish at the moment on silver, and for this article, I thought it would be useful to review historical silver prices during the Great Depression era as this is something I left out of my previous article.
Let me be the first to say I’m not big on stock market chart analogs. When I see others use analogs, I usually don’t get very far before I stop reading. So if you are one of those people, I understand. However, I am also a firm believer that history rhymes, although not always perfectly. My goal for this article is for people(including myself) to prepare for a wide range of possible outcomes in the short term, with a firm understanding of the probability of the longer-term(3 to 4 years) outcome.
Since I believe history rhymes, let me say that I believe what we are living through today is the modern-day equivalent of the depression era of 1929 to 1932, even despite the most recent jobs report appearing very positive. Without going into details on why(besides the obvious economic conditions) I think it’s appropriate to understand silver price behavior in this time period.
Without belaboring the point further, here’s a chart of silver prices brought to us by macrotrends.net. It showcases silver prices from 1915 to 1945. Notice how the “Roaring 20s” reveal a continuous price decline in the price of silver. Sound familiar to the decade we just went through for silver prices? I think so. Then once 1932 was reached, which was the bottom in the S&P and Dow Jones Industrial Average, silver prices began to rise very sharply.
Here’s another chart showing silver prices adjusted for inflation and in log-scale during the Great Depression years. When adjusted for inflation, this chart bottomed in 1930.
The question is, if these charts are informative for where silver prices are today, then where are we on these charts? In my humble opinion, 2021 will be the equivalent of 1932 when we reach a bottom in the stock market and begin moving higher. This is a bold claim I understand, and is simply based on my historically informed opinion. If this is accurate, it looks like silver prices bottomed in 1932 which means, then silver has either reached a low, or it is within about a year of having reached a low.
To account for multiple outcomes in the short-term, I’m long certain silver stocks, while keeping powder dry to buy more if the silver price decides to go lower before going higher in 2021 and beyond. It goes without saying that I also try to keep a diversified portfolio.
Take With A Grain of Salt
As I stated previously, analogs only go so far for me. I wouldn’t be willing to take this much further and say that silver prices won’t reach their previous decade high of around $50/ounce because they didn’t reach their previous decade high in 1935. Although I’m open to the possibility and will be watching closely.
For a little more context, here is the inflation-adjusted log-scale chart from 1920 to 1970 so you can see what silver prices did over the longer-term.
The Great Depression Backdrop
Similar to today, the Great Depression was a very deflationary time period and it was rumored that FDR was going to try to create inflation before he entered the office, not unlike our Federal Reserve today. As FDR entered office, he started off with the Agricultural Relief Act in May of 1933 which despite its name, reached much further than only affecting agriculture. It allowed the President to reduce the gold backing the dollar by up to 50 percent. This also gave the president the power to back the dollar with a proportion of silver and not just gold, giving the silver price a boost. To know that this was one of the first things FDR did as president tells us a lot about the man.
Next, he signed Executive Order 6814 which made it illegal to hold silver and required all silver be transferred to the treasury at a set price, to be used for coinage.
If history rhymes, I would expect to see some currency gimmickry(besides obnoxious money printing) in the next 2 to 4 years as a result of a deflationary tailspin, or the possibility of a hyperinflationary tailspin. This certainly begs the question, will my gold and silver investments be safe from government intervention like we saw in the Great Depression era. Although I don’t have an answer, I think it’s a very important question to be asking.
The purpose of this article was to shed light on the possibility that we are living in a similar point in history as 1929 to 1935 where the silver price declined for about a decade followed by a sharp price increase. Over the longer-term of 3 to 5 years, I think there’s a strong probability that the silver price increases according to the silver chart analog during the Great Depression. Fundamentally, this is also based on the fact that the economy is weak and heavily reliant/addicted to cheap money and money printing which even against the Federal Reserves’ wishes, will inflate precious metals. The question remains, what is the path that silver prices will take to get there. It’s this possibility of multiple paths that I’m both preparing my portfolio for, as well as my emotional and psychological self for in advance. One thing can be sure, it promises to be volatile.
This article was written by
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