What is The Best and Worst Case Scenario For Silver Price?

In this post, I want to talk about the next few years, stacking gold and silver and what prices we could see. In particular, I will discuss the worst-case scenario, the best-case scenario and the most likely scenarios in terms of silver and gold’s price and what could drive them there. 

The Best-Case Scenario:

To me, the best-case scenario, in terms of silver and gold price is that we see a revaluation of gold by the US government. Now, it’s important to point out that there is currently no bill or serious discussion of doing this at least in public. 

However, there are several reasons to think this could happen. One is that politically speaking, this wouldn’t be a terrible move if needed to be done. In other words, if the US entered some sort of sovereign debt crisis, and needed to raise capital, this could be an attractive option. For one, if gold was revalued higher in price, it would allow the government to pay off more of its debts. 

In addition, the general public, since most don’t own debt, wouldn’t be negatively affected, at least directly. 

Another key reason this might or could be done is that it has happened before. Many of you know this already, but using executive order 6102 in 1933, President FDR made holding more than $100 in gold illegal. After effectively stealing everyone’s gold, priced at $20.67 a troy ounce, the government several months later recalculated the gold price to be $35.00 a troy ounce. In essence, he devalued federal reserve notes or US dollars just like inflation does. 

Now the rationale then was people were hoarding gold, effectively stalling the economy from growing, which it needed desperately since economic output had fallen so much. However, in reality, the government needed more gold so they could issue more fiat money. Remember then fiat money had to have 40% gold backing it. 

Today, if this were done, I suspect the reasoning would just be to prevent a disaster. And most people would be okay with this. Remember back in 2008, when AIG sold insurance against Collateralized Debt Obligations. These products were called credit default swaps and were considered extremely safe at the time. However, when the mortgage market crashed, there were so many mutual funds and pension funds tied to the company it was thought that if AIG was allowed to fail it would have wrecked the entire economy. Of course, the government was able to pass a 700 billion package to bail out financial companies they deemed “too big to fail”.

One Other possibility related to this is that we could see the United States Federal Reserve Implement Yield Curve Control, similar to Japan. If this occurred, the Federal Reserve would buy US Treasury bonds in order to ensure the yields don’t spike too much. Remember as US bills and bonds become less attractive, the US Treasury must increase yields in order to make them more attractive for investors. It is thought by some that if it gets very bad in the US economy, we might have to implement yield curve control and a gold revaluation to prevent a collapse of the economy.

This raises the question, what would gold be revalued to if this occurred? 

As of March 2024, the United States has 8,133.46 metric tons of gold in its reserves. Each metric ton has 2200 pounds, and each pound has 14.58 troy ounces. With 32,076 troy ounces in a metric ton, the US has approx. 260,874,108 troy ounces of gold. With a $2350 spot price (example number), the value of the gold reserves is about 613 billion dollars more or less. 

Now from here it’s anyone’s guess how much it could be revalued to. Just to give an idea though, if it were revalued to $70,000 a troy ounce, that would pay off about half the national debt, or 18 trillion. 

Some believe it might be revalued at some point and there’s various thoughts as to why it might occur. 

The Worst-Case Scenario:  

Now I think this is unlikely but a Bad scenario for silver and gold the next five to ten years would be for the metals to lose value and demand to decrease both from industry and investors. From a price point if we saw silver decrease to $10 a troy ounce, and industry began to steer away from buying silver that would be bearish for silver. If we saw gold as well struggle in terms of price, and even with significant inflation, not keep up with prices this would not bode well for Gold. To make a situation even worse, would be if we saw cryptocurrencies to begin to be used widespread as money and rise in price as well. There’s an opportunity cost when you buy precious metals and if people discover there are other hard assets, that preserve wealth, this might hurt demand. 

Still, I think the most devastating event silver and gold could face would be if massive, massive amounts were found through mining. This could theoretically decimate the price if the supply of the metal significantly increased. It is very unlikely though. 

In addition, it should be said if that were the case, we could probably expect mining companies to reduce supply in the market in order to keep prices higher. They probably would collude with another as it would be beneficial for them to do so. 

Again, I don’t see though the bad scenario happening as there is simply too many issues in the economy, especially with debt.  

The Most Likely Scenario

To me the most likely scenario is that we see a sustained increase in prices of gold and silver, and other hard assets too this decades. I think from a price perspective silver and gold will outpace other investments or at the very least stay alongside them. This is because at some point the next five to ten years, I think we’re going to have a deep recession or possibly worse. 

Gold and silver will fall in price during this time, but not nearly as much as stocks and probably bonds as well. The reason gold and silver price will fall, is many ordinary people will be forced to sell to raise cash. Traders too might decide to sell out of their precious metal positions as they could need to cover losses from equities.

While a disastrous scenario could certainly hit the US economy and the world, it’s likely we’re going to see at the very least a recession. If not, we should all brace for a major disaster. 

As Jerome Powell himself recently noted at a conference, and I’m paraphrasing: “It’s obvious we have an issue with the debt and better to deal with it sooner than later”.