How Much Upside is Really Left in Gold & Silver?

Casey Research’s Gold Commentary

By Jeff Clark

With gold a stone’s throw away from $2,000 and already up 27% on the year, the objective investor might begin wondering how much higher both it and silver can climb. After all, gold is nearing its inflation-adjusted 1980 high – and that peak was a spike that lasted only one day.

So, how much upside is realistically left in each metal? And is one a better buy than the other? There are dozens of ways to calculate price projections, but I’m going to use data based strictly on past price behavior from the 1970s bull market.

First, let’s measure what today’s inflation-adjusted price would be if each metal matched its respective 1980 high, along with the return needed to reach those levels:

Based on the CPI-U (the government’s broadest measure of inflation), gold is a couple jumps away from matching its 1980 high of $850. Silver, meanwhile, has much further to climb and would return over three times our money if it reached its former peak.

But the CPI is a poor measure of real inflation. Let’s use John Williams’ Shadow Government Statistics. His data is much closer to the real world and is calculated the way it was during the Carter administration, stripped of later manipulations.

Check out how high gold and silver would soar if they adjust to this level of inflation:

Clearly, both metals would hand us an extraordinary return from current prices. Those are some admittedly high numbers, but remember, that’s what the CPI figures above would register if government officials had never changed how it’s calculated. What’s interesting about these prices is that we’re not even halfway to reaching them.

Let’s look at one more measure. I think another valid gauge would be to apply the same percentage gain that occurred in the 1970s to today’s market. From their 1971 lows to January 1980 highs, gold rose 2,333%, while silver advanced an incredible 3,646%. The following table applies those gains to our 2001 lows and shows the prospective returns from current prices:

Gold would fetch us over three times our money, while silver would return us almost four times.

Regardless of which measure is used, it’s clear that if gold and silver come anywhere close to mimicking the performance of the last great bull market, tremendous upside remains.

You may be skeptical because these projections are based on past performance, and nothing says they must hit these levels. That’s a valid point. But I would argue that we’re in unchartered territory with our debt load and money creation – and neither shows any sign of ending. We had a lot of problems in the 1970s, but our fiscal and monetary abuse now dwarfs what was going on then. The need to protect your assets gets more pressing each day, not less so. That, to me, is the key signaling this bull market is far from over.

You may also be skeptical because the media continue to claim gold is in a bubble. To date, their proclamations have been nothing but a great fake-out, every time. Want to know when we’ll really be a bubble? When they stop saying it’s one and actually start buying and recommending gold. When they begin running 15-minute updates on the latest gold stock. When you are sought out relentlessly by your friends and relatives because they know you know something about all this “gold and silver stuff.”

All told, I think the baked-in-the-cake inflation – rooted in insane debt levels and deficit spending – will be one of the primary drivers for rising precious metals this decade. This means the masses will look for a store of value against a plunging loss of purchasing power. Enter gold and silver.

The current correction may not be over, and you can count on further pullbacks along the way. But the data here suggests the upside in gold and silver is much bigger than any short-term gyration or any worry that may accompany it.