$1,000/oz For Silver Today: A Starting Point

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by Jeff Nielson, Bullion Bulls Canada:

Regular readers are well aware of an unresolved problem/issue which has permeated these commentaries for (especially) the past three years: the lack of any rational or objective means for pricing assets, most notably precious metals themselves. There are two enormous obstacles facing any analyst, in attempting to resolve this issue.

First of all; our economies are now operated with currencies which are not only worthless, but are absurdly fraudulent and worthless. With all asset prices denominated in one form or other of this worthless paper; this makes the absolute price for all hard assets “infinity” – with no means of differentiating between asset classes.

Compounding this enormous practical difficulty; the relative price of assets (in relation to each other) has also been skewed well beyond the slightest connection with “reality” (i.e. the economic fundamentals particular to each asset class) through endless, systemic, market manipulation. Previous commentaries have frequently noted that “we no longer have markets”, just rigged casinos. Thus the ridiculous prices generated through this systemic fraud have no relevance or legitimacy whatsoever.

Boiled down; the conundrum facing us in attempting to estimate (current) rational prices for assets is two-fold. Not only do we lack any obvious starting point for where to begin this process; we have no visible parameters to guide us in how we begin this process. How do you begin to estimate rational “prices”, in a totally fraudulent system, denominated in worthless currencies?

Enter Rob Kirby. In a recent interview for Sprott Money News; Mr. Kirby was in fact asked this specific question: how do we engage in the relative pricing of assets, with asset prices “skewed so severely through manipulation”? Here was his response:

I take the last 3,000 years, roughly. I put it on a yardstick. I ask myself for the greatest amount of that yardstick, what served as money? If you take the last 3,000 years and you put it on a yardstick, for about 32 inches of that yardstick somewhere between 40 and 60 ounces of silver was a solid upper middle class wage.

My question back to you is tell me exactly what you consider to be a solid upper middle class wage today? If you’re like me, you’re going to probably say that it’s around $50 to $60 thousand a year. Some might have a different number. I’m just going to take $50,000 a year, and I’m going to divide that by 40 ounces of silver…[it’s] more than $1,000 an ounce in today’s dollars. [emphasis mine]

Kirby’s response is ingenious, in that it addresses both how and where to begin in the relative pricing of assets, and he supplies us with an objective metric to use in beginning this process: the “average wage”. While critics can quibble, slightly, with the specific metrics he used in this calculation; the methodology itself is unquestionably sound.

The “average wage” is an objectively definable concept. The workers earning that average wage must be paid. Thus we can use that average wage to come up with a price for moneyreal money (i.e. silver and/or gold). $1,000/ounce for silver is a “starting point” (as noted in the title) in two respects.

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