Silver Prices Ready for QE3

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"Just look at what silver prices did after Bernanke announced QE2. From August 2010 to August 2011, silver prices gained 141% to hit more than $43/oz."

Recent economic data might be enough to get the U.S. Federal Reserve to finally commit to more stimulus measures, which in the past has delivered a good run for silver prices.

The United States last week reported economic growth of just 1.5% for the second quarter of 2012, down sharply from the rates posted for the previous two quarters.

As a result, the Dow Jones Industrial Average jumped as traders anticipate more economic stimulus from the Federal Reserve, either at the Federal Open Market Committee (FOMC) meeting this week or when Chairman Ben Bernanke speaks at Jackson Hole in late August.

If another round of quantitative easing (QE3) is announced get ready for a long-term climb in silver prices.

Just look at what silver prices did after Bernanke announced quantitative easing 2. After the Fed said it would employ the second round of stimulus, from August 2010 to August 2011 silver prices gained 141% to hit more than $43 an ounce.

QE2 consisted of the Federal Reserve inflating its asset sheet to buy about $700 billion in U.S. Treasury bonds to finance the budget deficit of the United States. As a result of this, the value of the U.S. dollar plunged while the exchange-traded fund for silver, iShares Silver Trust (NYSE:SLV), and the gold ETF SPDR Gold Shares (NYSE:GLD) both soared.

During the course of QE2, the exchange-traded fund for the U.S. dollar, PowerShares US Dollar (NYSE:UUP), fell from over $25 to the low $20s. By contrast, GLD rose from under $120 to more than $180 a share. SLV surged from under $20 to near $50.

SLV recently has risen ahead of the FOMC meeting, but just slightly, in hopes of more economic stimulus measures. But it's trading around $27, still well beneath its peak hit during QE2, meaning it could be about to see another doubling in price.

SLV isn't the only way to buy silver. Here are more ways to stock up before prices climb.

Central Bankers: Silver Price Manipulators?

In an interview with CNBC in June, Chris Powell, Secretary and Treasurer of the Gold Anti-Trust Action Committee claimed that, "as central banks are interested in supporting government bonds and the dollar and keeping interest rates low, they continue to manipulate the gold market."

That's particularly true regarding Bernanke, who is the de facto central banker for the world. The share price performances of UUP, GLD and SLV during QE2 are perfect examples of the power of central banks to move commodities prices while supporting government bonds and the stock market.

With this form of manipulation likely to occur again, investors could be on the cusp of big commodities profits.

At around $27, SLV is far from its 52-week high of $42.78; and very close to its low of just $25.34. Gains last week were modest considering QE3 is likely on the horizon.

While the Dow Jones was strong, SLV only rose 1.79% for the week, up 0.92% on Friday when the U.S. economic growth figures were released before market open. It was much the same story with gold, as GLD increased 0.49% on Friday. For the week, however, GLD increased by 2.52%.

The UUP was down only 0.04% on Friday, 1.04% for the week, and 0.04% for the last month of trading.

At such low price levels, there are greater gains ahead for silver prices and investments like SLV when QE3 is announced.

Jonathan Yates
Money Morning

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