Silver Deep Dive

Silver had a memorable year (+148%). Some of this can be explained by a decline in the dollar. I decided to do some ML analysis to look for other insights. I downloaded 100 years of monthly price data from macrotrends.net. Note that gold prices were fixed by the US government until 1971 and this likely held silver prices in check. Silver ended the year over $71/oz. You can see from the histogram and box plot charts how unusual that is:

The next thing I looked at was the gold/silver ratio. This uncovered something I didn't know. The linear regression of the ratio shows that it has been rising. The current ratio is well below the regression line meaning that silver is priced higher than typical versus gold. A reversion to the regression line would require either gold to rise in price or silver to drop. Based on this chart, I decided to sell about 80% of my silver.

Next, I took a look at the inflation adjusted prices. This chart is from macrotrends.net and suggests that silver could rise over $100/oz if it followed the same trajectory.

Finally, I ran a SARIMAX model to forecast the price six months in the future. I gave the model gold prices as exogenous data and assumed gold prices would rise 0.5% for the next six months. The forecast looks tiny since there are 100 years of price data. The forecasted silver price in six months was $79.37/oz. The inflation chart makes a case for higher prices, but the long term regression line suggests lower prices, at least in relation to gold.