Between 1970 and 1979, the silver price was increasing steadily from $1.50 to $6, before taking off in September 1979 from $10 to $50 within 5 months. During that bull cycle, demand for silver did not increase but actually declined (sharply in 1979). It was as late as 1983 when demand increased confidently from 12,000 to 27,000 tons per year until 2000 – yet the silver price was in a 20 year bear market during that time. In 2003, when silver started its new bull market, the demand actually dropped to 23,000 tons until 2005 – during which two years silver almost doubled from $4.50 to $8. Since 2005, demand is rising stronger than ever, having reached 33,000 tons in 2010, whereas the silver price is rising strongly as well.
The CPI basket has been changed in a way that does not seem to represent real inflation anymore. An increasing number of market participants estimate real inflation higher than the official 2-3% p.A. (CPI). The SGS (Shadow Government Statistics) index is felt to better reflect real inflation, whereas it uses the same definition/calculation of inflation as official government agencies used in 1980. Currently, the annual SGS inflation rate stands at 6% p.A. If we now adjust the dollar by SGS-inflation (instead of CPI) and look back at “the old all-time high” of the last bull cycle in January 1980, we note the “SGS real” silver price traded at almost $500 (in today’s dollar terms, whereas these terms are defined by an inflation measure that was used in 1980 and not today). This translates into: if I wanted to sell silver today at the same price level as in January 1980 considering today’s purchasing power of the dollar, silver would need to trade at around $500 today. Or the other way around: if I bought silver at the peak of the last bull market, its price must really/today trade at around $500 to get me out without a real/net loss.