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Daily Commentary
Thursday, 7 July a.d. 2011 Browse the commentary archive

I have a button on my keyboard that I can push to make mistakes from the minute to the spectacular. Yesterday I pushed it & it gave y'all the wrong stock index closes. Correct is the Dow at 12,626.02 (Up 56.15) and the S&P500 up 1.34 at 1,339.22. Didn't really make much difference.

In Minnesota the state government has been shut down seven days, and the only people who have noticed are the ones who work for the state. Wow. I wonder if we could make that a tradition, where government shuts down for seven out of every 14 days. Reckon a lot of folks, more than half of those receiving income,in fact, would find a new job, & the rest of us would live more peaceful & sensible & unbothered lives.

One reader asked a good question about the relation of the US dollar, Dow, & silver & gold, and questioned the Chinese economic miracle. I wrote back

Fear of the euro drives up the dollar AS WELL AS GOLD. Fear of the euro benefits both dollar and gold.

To believe that China is bulletproof economically means you must also believe 1. That developing economies building on borrowed money

never experience large corrections of spongy growth

(a proposition disproved by the last 150 years' history), and 2. That a planned economy can outperform a free economy.

Well-founded reports of huge overbuilding and overstocking

(dead inventories) have been coming out of China

for more than 10 years. One day the carbuncle will burst.

Regardless what the dollar does short term, metals will rise long term because long term the US government & Federal reserve MUST inflate or die, so they WILL inflate.

TODAY stocks clambered up on the open & maintained those gains all day. Dow added 93.47 (0.74%) to 12,719.49 while the S&P 500 added 14 (1.05%) to 1,353.22.

Process of ratcheting to new levels continues. Now 12,750 is the barrier but before this rally ends the Dow will see 12,876 or higher & all the gurus & pimps -- WHOA! did I say "pimps"? Yes, I did. -- will be touting a new era & permanent high levels for stocks.

Stocks -- they're YOUR ticket to an impoverished old age. Cat food, anyone? It's reeeeally crunchy.

Somebody ambushed the US dollar index at 75.40 & hit it on the head with a ball-peen hammer. Dollar was knocked plumb out, fell to 74.85, but recovered to trade now at 74.919, down 20.3 basis points.

Appears that today marked the end of the Dollar's rise from Monday, but nothing more than that. May fall back to 74.50, but will keep on climbing, however glacially.

Euro roused today like a drunk from a gutter, close at 1.4362, then passed out again. Hit the 20 DMA. Nice Government Men in Nippon have the Yen well in hand. Closed today at Y81.26/$ (123.08c/Y100).

As I intimated yesterday, gold used up all its energy climbing from $1,480 to $1,530 in two days, & leaned up against the wall to breathe today.

Today on Comex gold ascended a not very steep $1.50 to close at $1,530.20.

Where are we now? Possibilities abound.

1. Gold will hit the downtrend line from its May peak tomorrow about $1,540 and burst thru, smash minor resistance shortly at $1,555 - $1,560, & disappear into the stratosphere, leaving behind only wispy little contrails for those not on board.

2. Gold will trade sideways through August in a range between $1,560 and $1,575, then in September turn up in earnest, meanwhile frustrating the life out of all of us.

3. Gold fell down out of an even sided triangle bounded above by May 1 at $1,577.40 and June 3 @ $1,555 and below by the line drawn from May's $1,462.50 to June's $1,511.40. It broke down from that triangle 25 June, traded down to $1,478.30, and has since rallied to the APEX of that triangle, from where it will fall again to lower lows.

Of those three, No. 3 looks most likely to me, but the market tells me, I don't tell the market. Tomorrow the market will speak, but maybe out of both sides of its mouth because it will be Friday & people close out their positions before the weekend after big-gaining weeks, so gold might back off tomorrow to $1,525 or $1,518 and still come back Monday punching its muggers in the mouth and screaming through $1,540.

Whatever the outcome, that $1,540 is the mark to watch. Downside, gold must not close below $1,505 or its inertia will shift in favour of gravity.

SILVER is not as unequivocal as gold. It remains today above its 20 DMA, reaching for the 50 Dma at 3690c. On Comex silver tweaked the croakers by stealing another 61.7c to close at 3652.8, well above 3600c resistance.

Since May silver has formed a flat-topped rising triangle with the top at 3850c. These formations can break out either way, but usually break out to the upside. Silver's fault is, however that it broke DOWN out of the triangle, from 3650c (about today's level) then traded down and sideways: no resolution.

So silver tells us nothing -- not a hint -- till it closes above 3850c or below 3370c. Silver must yet plow across the wretchedly contrary seasonal ground of July & August, never kind months.

For me this sort of market is pretty much lose/lose, because it could resolve either way. Oh, I know that by August the travail will have ended, but will it hit a new low in the meantime?

No way for a natural born fool from Tennessee to tell.

By the way, the gold/silver ratio fell today to 41.891, and that is NOT bearish for silver.

Be patient, watch, box the market. If it clears 3850c buy, or if it breaks 3370c get ready to buy, but in between we don't have much guidance. I got tired of waiting and bought a goodly amount, but it may leave gravel in my mouth. So be it.

MILESTONES OF AMERICAN CULTURE: On 7 July 1967 the Door's "Light my Fire" hit No. 1.

On 7 July 1928 the Chillicothe (Mo) Baking Company sold pre-sliced bread for the first time, described as "the greatest step forward in the baking industry since bread was wrapped." I don't know about that, but it did give birth to the admiring idiom, "the greatest thing since sliced bread."

On 7 July 1865 four conspirators were hanged for the assassination of Abraham "Genocide" Lincoln. That inaugurated an American tradition of super speedy trials before courts martial staffed by kangaroos & burning down buildings with suspects inside, a tradition still practiced today.

On 7 July 1863 the yankee government passed its first military draft. Exemptions cost $100, which sounds cheap until you grasp that was 4.8375 oz. of gold or at today's prices, US$7,402.34. Truly it was a "rich man's war but a poor man's fight."

On 7 July 1456 a re-trial acquitted Joan of Arc of heresy charges. Unfortunately she had been burned at the stake 25 years earlier.

Argentum et aurum comparanda sunt —
Silver and gold must be bought.

— Franklin Sanders, The Moneychanger

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Market Snapshot See more charts and market data
7-Jul-11 Price Change % Change
Gold, $/oz 1,530.20 1.50 0.1
Silver, $/oz 36.53 0.62 1.7
Gold/Silver Ratio 41.890 -0.678 -1.6
Silver/Gold Ratio 0.0239 0.0004 1.6
Platinum 1,746.10 18.90 1.1
Palladium 787.65 22.10 2.9
S&P 500 1,353.22 14.00 1.0
Dow 12,719.49 93.47 0.7
Dow in GOLD $s 171.83 1.11 0.7
Dow in GOLD oz 8.31 0.05 0.7
Dow in SILVER oz 348.21 -3.38 -1.0
US Dollar Index 74.92 -0.20 -0.3
IMPORTANT NOTE: The following are wholesale, not retail, prices. To figure our retail selling price, multiply the "ask" price by 1.035. To figure our retail buying price, multiple the "bid" price by 0.97. Lower commissions apply to larger orders, higher commissions to very small orders.
SPOT GOLD: 1,531.70      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,573.82 1,587.82 1,587.82
1/2 AE 0.50 781.17 804.14 1,608.29
1/4 AE 0.25 390.58 405.90 1,623.60
1/10 AE 0.10 163.89 170.02 1,700.19
Aust. 100 corona 0.98 1,487.11 1,499.11 1,529.39
British sovereign 0.24 358.76 378.76 1,609.00
French 20 franc 0.19 285.97 290.97 1,558.48
Krugerrand 1.00 1,544.72 1,558.72 1,558.72
Maple Leaf 1.00 1,547.70 1,571.70 1,571.70
1/2 Maple Leaf 0.50 802.23 811.80 1,623.60
1/4 Maple Leaf 0.25 402.07 405.90 1,623.60
1/10 Maple Leaf 0.10 156.23 176.15 1,761.46
Mexican 50 peso 1.21 1,834.61 1,849.61 1,534.06
.9999 bar 1.00 1,537.06 1,548.06 1,548.06
SPOT SILVER: 36.44      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 31,000.00 34,000.00 44.44
VG+ Peace dollar 0.77 31,000.00 34,000.00 44.44
90% silver coin bags 0.72 25,457.58 25,757.58 36.02
US 40% silver 1/2s 0.30 10,305.83 10,520.83 35.66
100 oz .999 bar 100.00 3,653.50 3,693.50 36.94
10 oz .999 bar 10.00 366.35 370.85 37.09
1 oz .999 round 1.00 36.64 37.69 37.69
Am Eagle, 200 oz Min 1.00 37.69 39.59 39.59
SPOT PLATINUM: 1,746.10      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Am Eagle 1.00 1,746.10 1,846.10 1,846.10
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Warnings and Disclaimers

To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary trend is up, targeting 16:1 gold/silver ratio or $195.66; stock's primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold or 16 ounces of silver. US$ and US$-denominated assets, primary trend down; real estate bubble has burst, primary trend down.

Be advised and warned:

  • Do NOT use these commentaries to trade futures contracts. I don't intend them for that or write them with that short-term trading outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures.
  • NOR do I recommend investing in gold or silver Exchange Trade Funds (ETFs). Those are NOT physical metal and I fear one day or another may go up in smoke. Unless you can breathe smoke, stay away. Call me paranoid, but the surviving rabbit is wary of traps.
  • NOR do I recommend trading futures options or other leveraged paper gold and silver products. These are not for the inexperienced.
  • NOR do I recommend buying gold and silver on margin or with debt.
  • What DO I recommend? Physical gold and silver coins and bars in your own hands. For additional information, please see our Ten Commandments for Buying Gold and Silver.
  • One final warning: NEVER insert a 747 Jumbo Jet up your nose.

Explanation of Terms

The US DOLLAR INDEX is the average exchange rate for the US dollar against the Euro, Yen, Pound sterling, Canadian Dollar, Swiss Franc, and Swedish Krona, weighted for each country's trade with the US. It gives a general measure of the US dollar's performance against all other currencies.

The DOW IN GOLD DOLLARS measures the Dow Jones Industrial Average in gold dollars (0.048375 troy oz. by law). The DiG$ depicts the Primary (20 year) Trend of stocks against gold. When the DiG$ is dropping, gold is gaining value against stocks in a trend that should last 15-20 years. The DiG$'s chart is identical to the Dow in ounces of gold, but gives us one unvarying measure all the way back to 1896. Because it shows the primary trend ("tide") of gold against stocks, for investors it is the single most important financial chart in the world today. Since its August 1999 high at G$925.42 (44.8 ounces), the DiG$ has trended down, targeting a G$80-G$20 (4-1 oz. of gold will buy the whole Dow).

The DOW IN SILVER OUNCES shows how many ounces of silver are needed to buy the entire Dow. The DiSoz is trending down with a target of under 36 ounces.

The GOLD/SILVER RATIO is the gold price divided by the silver price, and shows how many ounces of silver it takes to buy one ounce of gold. The Ratio shows us the Primary (20 year) Trend of gold's value against silver. When the Ratio's trend is dropping, silver is gaining value against gold. This trend targets a gold/silver ratio of 16 ounces of silver to one of gold within the next 5-10 years. That implies that silver will massively, vastly outperform gold before this bull market ends. When both metals are rallying, the ratio often (but not always) drops, confirming the rally.

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