Silver’s Bubble Is About To Burst

| April 19, 2011 | 0 Comments

The PSI (Pizza Shop Indicator) is predicting a major crash in silver…

I’ll tell you what to do in a minute.  But first, let me tell you how I heard about the coming crash.

It began with a phone call from an old friend.  It was Chris’ birthday and I had predictably forgotten all about it.  (I’m horrible with birthdays…)  But as luck would have it, I didn’t have any plans for the evening.

An hour later, I met Chris and a few others for beer and pizza at Spinato’s, a local pizzeria.  The restaurant’s nothing fancy.  It’s tucked away in an unassuming strip mall.  But it’s the best pizza in town.  (If you’re ever in Phoenix, I highly recommend their “Signature” spinach pizza.)

We sat in the traditional looking pizzeria having a few laughs, drinking beer, and eating pizza.  Then I heard it… silver’s death knell.

It came from the table right behind me.  I wasn’t trying to eavesdrop.  The words just seemed to float across the crowded restaurant directly into my ears.  They sent a shiver down my spine and I nearly spat out my beer.

The PSI had been triggered…

As soon as I recovered from choking on my beer, I blurted out “That’s it! Silver’s going to crash!”  All I got back were blank stares… I was completely off topic and everyone was looking at me like I had lost my mind.

I didn’t want to kill the festive mood, so I laughed it off and spun the conversation back toward a much lighter note.  But what I heard stuck with me.  And I’m convinced it’s a telltale sign the silver bubble is about to burst.

What did I hear?

I heard the dumb money buying silver.

I’m sure he was a nice guy.  But he was unmistakably the dumb money.  He said, “I just bought silver a week ago and I’m already up 10%!”  But here’s where it gets scary.  He continued on to say, “I don’t know why I bought it.  It just keeps going up and I don’t want to miss out!”

And that’s the sound of the Pizza Shop Indicator triggering!

I’ve heard this conversation before…

I heard it about tech stocks in 2000.  I heard it about real estate in 2005.  And now I’ve heard it about silver in 2011.  And we all know what happened to tech stocks in 2000 and real estate in 2006.  I don’t think it’s a stretch to think silver will share in the same fate.

You see, silver is up a whopping 125% since September 1st 2010.  Take a look at this chart of the iShares Silver Trust ETF (SLV) going hyperbolic…

The truth is there are plenty of reasons to buy silver… some good and some bad.  But once people begin buying silver because they “don’t want to miss out”, it’s a sign the easy money’s already been made.

Simply put, you don’t want to follow the dumb money.  They’re the last ones to buy into a bubble.  They’re the ones who get stuck holding the bag!  And in the end, they’re the ones who end up losing money when the bubble bursts.

The problem is… I don’t know exactly when it will burst.

Asset bubbles are funny that way.  They can get bigger and go on for longer than any rational investor can understand.

In my opinion, most investors should just stay away from asset bubbles.  They move too fast to trade profitably.

Now, the PSI may not be some scientifically proven metric.  But it’s strong anecdotal evidence of investor sentiment.  I heard the same talk before the tech bubble burst.  And I heard the same chatter before the real estate bubble exploded.

It’s a clear sign that silver’s in a bubble.

If you already own silver through an ETF like SLV… Congratulations!  But now it’s time to protect your gains.  Tighten up your stops and be prepared to sell.  For your own good, don’t ignore the Pizza Shop Indicator.

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Category: Commodities

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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