|
Silver Value Calculator (Inflation Risk Weighted) |
 |
 |
 |
|
Written by Administrator
|
|
Friday, 08 April 2011 23:21 |
 This is the companion to my gold value calculator. We can determine the present fair value of silver on a risk-adjusted basis just as an actuary would value insurance, since that's precisely what silver is -- insurance against inflation, currency crisis, and hyperinflation. All you have to do is plug in what you think the risk of inflation will be, and out will pop the risk-weighted present value of silver. The difficulty in using this method for silver is that, unlike with gold, there is no well-established historical benchmark to determine over-valuation. However, given that our purpose is to hedge against inflation, I have decided to use the Continuous Commodity Index (CCI) by way of the Greenhaven Continuous Commodity Index Fund (GCC). In this way, we can gauge silver's future buying power against a broad basket of commodities.
That's not the future after-inflation value, but the current fair value given the stated inflation expectations. That's an important distinction because the future price will be this value times the aggregate inflation. Instead, the value provided by this calculator should be compared to the current market price of silver to determine how over- or under-valued it currently is. E.g. using the current inflation assumptions, silver is -valued by . It should by this much to be a fair value given the presently predicted currency risk.
For more information about how these calculations are performed and why you might expect inflation and silver to go much higher, I highly recommend viewing Paul Tustain's video presentation. In it, he discusses primarily the case for gold, however the two metals are closely linked, and the same principles apply.
Tustain's assumptions are actually pretty conservative with the highest probability at around 6% annual inflation. That's a very tame rate considering what it was in the 1970s and given our current debt and monetization outlook. It would not be radical to adjust those probabilities upward quite a bit and still be in the mainstream. Of course, I would adjust them upward a lot! I expect hyperinflation to set in by the end of 2016. On the other end of the spectrum, Ben Bernanke would have us believe that the Fed can control inflation at around 2%. So what would be the fair value of silver given these different assumptions? Click below to find out:
* These are of course my best guess as to Bernanke's assumptions based on his published thoughts and policies
** These assumptions derive from the above-linked video on gold and may not reflect Paul Tustain's thoughts on silver
Go ahead and play around with the values yourself to establish what you think the silver price should be. The most important line is your estimation of the probability for the annualized inflation rate in the line above it. In order for a change in any form field to take effect, you just have to take focus out of that field, i.e. click anywhere else on the page.
And if you now feel compelled to buy silver (you should!), I highly recommend BullionVault for secure, allocated storage in either an American or European (for country diversification) vault. Gold is also an excellent investment with similar inflation insurance qualities. If you open an account with BullionVault (no commitment necessary), they will give you your choice of either a free gram of gold or a free ounce of silver just to try it out! You'd be crazy not to!
If you prefer to keep your bullion in your own possession (a bolt-down safe is recommended), then your best bet is SilverSaver, where you can accumulate small amounts of silver or gold at a time in an American vault, and then accept delivery of your bullion inexpensively once you have enough to justify a shipment.
|
|
Last Updated ( Tuesday, 23 June 2015 16:48 )
|
