When to Buy Silver

Here is your five-year silver ETF (NYSE: SLV).

Each candlestick represents a month.

You can see where silver went on a rip-roaring tear from $20 to $50 two years ago…
 
Since that high-volume, blow-off top in the spring of 2011, silver has slowly but surely lost value.

Here at Wealth Daily, we stayed out of silver until late August 2012 when it met its five-year uptrend line and broke out of its shorter-term downtrend range.

I expect the price of silver will bounce along that uptrend in a similar way to the action we saw from 2008 through 2010.

Your goal should be to buy when it hits that line.

If you are a trader, you would buy the trend line and sell three months later, repeating the same pattern.

The Next Catalyst

The stock markets in New York are closed as I write this. Hurricane Sandy is beating up the coast and threatens to rip apart a wide swath of the Atlantic seaboard.

I doubled up the dock lines on my sailboat and put out the hurricane bumpers, but if we get an eight-foot storm surge, it is unlikely the dock will survive.

Tomorrow may see a mass of destruction with boats over the seawall, but there’s not much one can do at this point.

With the U.S. markets closed, let’s take a look at Europe…

The political mess continues in the old country.

The former Prime Minister of Italy has been sentenced to four years in jail. The new socialist president of France is destroying his country as surely as Mao destroyed China in the Cultural Revolution.

Europe’s newest bad data point is that the money supply continues to shrink. This is “pushing on a string” at its finest.

According to the UK’s Telegraph:

The broad M3 gauge — watched by experts as an early warning signal for the economy a year or so ahead — shrank by €30bn and is now down by €143bn since April. The narrow M1 gauge watched for signals of activity six months head has held up better but also contracted in September, falling by €16bn.

Loans to firms and households fell 1.3pc as banks continue to shrink their balance sheet to meet tougher rules. Private bank lending has been falling almost continuously since April.

Bailouts By Any Other Name

For those whose bread is buttered by the status quo, falling money supply raises the never-ending cry for more stimulus.

Again from the Telegraph:

“This credit contraction is what happened in Japan in the early 1990 and we have to be careful not get into deflationary spiral,” said Prof. Richard Werner from Southampton University, a Japan expert.

“They to need to launch true QE or an expansion in broad credit creation, and it cant be done easily.”

Hogwash.

The Bank of Japan threw money into the big black hole of stimulus for decades.

The country now has pretty bridges that no one uses, and a debt-to-GDP ratio of over 200% — the highest in the known world.

Japan is a country where the young can’t find jobs, won’t marry, and live with their parents well into their thirties.

Real estate has yet to find a bottom and exports are shrinking.

The Nikkei 225 is at 8,900 — well off its all-time highs of 39,000.

Japan is a case study in what not to do.

There is no reason for Europeans to expand a business or buy a house when the European economy continues to fall apart and the political situation is in chaos. To own or build is to become a target in the next riot.

You can’t spend your way out of a debt crisis.

The world has to eat the pain at some point…

Sooner will be less painful than later.

But alas, the powers that be won’t listen to reason.

There will be more stimulus, bailouts, and money printing. It will continue until it can no longer.

Buy silver on the dips.

Christian DeHaemer

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Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.