The Moneychanger
Daily Commentary
Monday, 11 July a.d. 2011 Browse the commentary archive

Be advised & warned: Do NOT use these commentaries to trade futures contracts. I don't intend them for that or write them with that outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures.

Schizophrenia savaged markets today: stocks tanked, dollar rose, gold rose, silver fell. But mayhap it makes some sense.

Stocks woke up in a bad mood & moved on to a migraine. Dow dropped a meaty 151.44 points (down 1.2%) to 12,505.76. S&P500 surpassed it with a 24.31 (1.81%) drop to 1,319.49 (maybe that should be "underpassed").

The chart leads to one of two conclusions: either stocks have made a double top and will keep sinking from here, or they will recover from the present fall & reach a new high slightly higher than the last at Dow 12,875, and THEN keep sinking. Either way, lower, much lower prices await them, for their primary downtrend (bear market) runneth still.

Stocks -- they are the can of anchovies in your Investment Survival Pack.

Seems the specter of big Italian banks being found udders up in the pasture is panicking folks out of euros & into the dollar & gold -- not so much silver.

Dollar index shot up today, breaking down the door at 75.40 & rushing all the way to 76.156. Never mind the occasion, technically this sets up the dollar to break down that 76 door, too. Trading now up 64.4 basis points (0.83%) at 75.971. As I have been warning, dollar moved higher.

Of course, that means the Frankenstein currency, the euro, moved lower. While the dollar is closing in on its 200 day moving average (77.01) from below, the euro today gapped down toward its 200 Dma (now 1.3899). Looks like somebody dropping a 3 inch bolt out a 3rd story window on a still day. Jumped clean over 1.4200 to 1.4100, and closed at 1.4032, down 1.63%. Could easily hit 1.2000 or lower before this settles out. Bear in mind that all the European mega banks are wallowing as deep in rotten sovereign debt as American banks were wallowing in rotten mortgage debt in 2008 (well, more accurately, the American banks also have weighty exposure to euro sovereign debt). Point is that a financial panic such as gripped the US in fall 2008 might now seize Europe. Watch: that will send the dollar skyward, the euro earthward, gold skyward, & silver earthward. And ALL stock markets toward the earth's core.

Friday gold had bumped up against the ceiling at $1,545, & kept bumping along over the weekend In European trading early today it began battering the hatch, then burst through about 7:00 a.m. NY time. By NY open the climb had already reached $1,550, & accelerated, but stalled at $1,556. Oddly, oddly -- in the view of those who know not the Nice Government Men who shepherd the markets -- about 10:30 some massive selling took the market in 15 minutes from $1,556 to $1,542. Means, motive, opportunity: We know the NGM have the means to manipulate silver & gold, we know their motive is to keep gold from running away while the euro is sinking out of sight, and of course they had opportunity & occasion today. Did them no good, though, because gold swiftly recovered to 1848, then climbed steadily through the day, ending Comex up 7.60 at $1,548.80. In the aftermarket it's trading $1,552 - $1,555.50.

Take the main chance: gold will rise higher. It has now reached that $1,560 resistance, & if trading even HINTS it intends to pierce that level, gold will race toward $1,575. Remember meanwhile that panic is driving this, & as quick as the NGM cobble together Humpty-Dumpty again, that driver will disappear. All in, it appears that gold has now forged a bottom off its May high. Trading range is from $1,480 to $1,560. Wherever this rally takes gold, it's not likely to trade below $1,510 again.

How is it, you may ask, that gold, which has been paralleling stocks & moving with them contrary to the US dollar, would suddenly rise with the dollar while stocks stumble? I reckon the financial crisis brewing in Italy grips so many hearts with panic that they are fleeing to liquidity, i.e., dollars & gold, and out of stocks. Unfortunately, that applies to silver also, which moves against gold as stocks move. When stocks wax strong, so silver waxes strong against gold, & vice versa. In times of panic, silver follows stocks.

Five day silver chart shows a turnaround. Silver made peaks Friday and today around 3685. Silver misplaced 84.7c on Comex today, closing at 3568.9c. That fall took the gold silver ratio up from Friday's 42.183 to 43.397, a 2.9% rise. Whew. Remember that's temporary.

By 8:30 a.m. this morning silver was touching 3685c, but then wavered, lost 40c in the next two hours, and found a cliff to fall off at 3640c. In 15 minutes it dropped 90% to 3550c, but recovered a little & flatlined the day away.

Stand back from the chart & ask what that means? It means that silver has twice been turned back from 3675-3650c, and it bent silver away from the 50 DMA (3642c) nearly to its 20 DMA (3534c). None of that settles the issue positively, but it whispers that silver has been turned back for more penance at lower prices. A close above 3650c would gainsay that.

For the nonce, and probably for the duration of this financial panic, silver & gold seem to have parted ways.

On this day in 1804 in a duel Vice President Aaron Burr mortally wounded former Treasury Secretary & architect of American mercantilism & government economic intervention & central-bank-ism Alexander Hamilton. Burr was a strong but not attractive character. He was later charged with but acquitted of treason for an alleged plot to create a new nation out of Texas & the Louisiana Territory. Boy. You wouldn't know who to root for in a duel between those two.

On this day in 1987 somebody formally announced that the world population had reached 5 billion, but nobody has ever said who counted 'em.

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
11-Jul-11 Price Change % Change
Gold, $/oz 1,548.80 7.60 0.5
Silver, $/oz 35.69 -0.85 -2.3
Gold/Silver Ratio 43.400 1.214 2.9
Silver/Gold Ratio 0.0230 -0.0007 -2.8
Platinum 1,727.50 -3.00 -0.2
Palladium 767.60 -20.05 -2.5
S&P 500 1,319.49 -24.31 -1.8
Dow 12,505.76 -151.44 -1.2
Dow in GOLD $s 166.91 -2.84 -1.7
Dow in GOLD oz 8.07 -0.14 -1.7
Dow in SILVER oz 350.41 3.98 1.1
US Dollar Index 75.97 0.64 0.9
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SPOT GOLD: 1,554.40      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,592.48 1,606.48 1,606.48
1/2 AE 0.50 792.74 816.06 1,632.12
1/4 AE 0.25 396.37 411.92 1,647.66
1/10 AE 0.10 166.32 172.54 1,725.38
Aust. 100 corona 0.98 1,509.15 1,521.15 1,551.88
British sovereign 0.24 364.08 384.08 1,631.59
French 20 franc 0.19 290.21 295.21 1,581.18
Krugerrand 1.00 1,562.95 1,576.95 1,576.95
Maple Leaf 1.00 1,570.40 1,594.40 1,594.40
1/2 Maple Leaf 0.50 814.12 823.83 1,647.66
1/4 Maple Leaf 0.25 408.03 411.92 1,647.66
1/10 Maple Leaf 0.10 158.55 178.76 1,787.56
Mexican 50 peso 1.21 1,861.80 1,876.80 1,556.61
.9999 bar 1.00 1,559.84 1,570.84 1,570.84
SPOT SILVER: 35.74      
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 25,032.15 25,332.15 35.43
US 40% silver 1/2s 0.30 10,100.80 10,315.80 34.97
100 oz .999 bar 100.00 3,584.00 3,624.00 36.24
10 oz .999 bar 10.00 359.40 363.90 36.39
1 oz .999 round 1.00 35.94 36.99 36.99
Am Eagle, 200 oz Min 1.00 36.99 38.89 38.89
SPOT PLATINUM: 1,727.50      
Plat. Am Eagle 1.00 1,727.50 1,827.50 1,827.50
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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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