The Real Value of Silver
The price of silver has historically been very low during the whole 20th century. In 1901 it was $0.6/oz and in 1999 it was $5.2/oz (yearly average). The only years it has been above $7/oz was 1979-1983. When Hunt brothers tried to corner the silver market it went as high as $50 in Jan 1980.
If we try to ascertain the inflation adjusted price of silver from the recent past, lets say 1971 onward, it does not come anywhere close to the 1980 peak.
The price of silver in 1971 was $1.4/oz and if we apply inflation rate of 3%-8% over the period, the inflation adjusted price will range between $5 and $36 (inflation 3% silver $5, 4% $7, 5% $11, 6% $16, 7% $24, 8% $36). A house bought in 1971 for $20k which now cost $230k, will represent 6% annual inflation ($20k in 1971 with 6% CAGR would be $230k in 2013). I have taken 1971 as base year, because it is prior to the oil crisis of the 70s (agreed, one can argue why 1971 and not some other year).
It has been claimed that silver price has historically been artificially suppressed. It has generally been quoted that the current mining/production cost of silver is between $15-20/oz. My assumption is that this cost is quite consistent over the last 40 years considering that inflation increase may have been offset by the increased efficiency due to technological advances.
Now what is most incredible is how these mining companies been kept in business over the last 40 years when there production/mining cost has been much higher then the selling price. Only during 1979, 1980, 1982 and 2006-13 the silver price has averaged over $10/oz.
To conclude, I do expect that the silver price would go higher but only due to coming financial meltdown. Although how high is difficult to say. In the normal circumstances, the silver price can not go above $25/oz if the production/mining cost is around $15-20/oz. The market (supply and demand) will always take care of the price. If the miners make huge profit, in the long run, new ventures will start and the increased supply will adjust the price accordingly.