The Moneychanger
Daily Commentary
Tuesday, 12 July a.d. 2011 Browse the commentary archive

Weird day. Fates are messing with the markets.

Fear of European financial crisis keeps panicking buyers out of euros & stocks & into dollars & gold -- but not silver.

Dollar index last night punched thru 76 and ran to 76.70 before the Nice Government Men called out their cowboys to tame that bucking bronco. They managed to run it down today to 75.703, but it was like holding a basketball underwater. Not much changed from yesterday it's now trading at 76.022, but that's as phony as the Consumer Price Index. 'Twill rise again tomorrow.

The euro added more downside to yesterday's gap, down 0.44% to 1.3970. The 200 DMA draweth nigh, & standeth now at 1.3902. The yen slipped out of the Japanese NGM's grip like a bar of soap in a bathtub, gapping up to Y79.18/$ (126.3c/Y100). NGM won't be enjoying sake & sushimi in peace tonight, I dare say.

Markets are whipping stocks like a rented mule. Dow lost 58.88 today to settle at 12,446.88 (down 0.47%) and S&P retreated 5.85 (0.44%) to 1,313.64. Trading was jerky & ragged. Looking bewildered, timid, & scared.

Stocks -- you can count on 'em in a crisis, just like a sprained ankle.

I reckon I got something right yesterday, snuffing out the nervousness when I wrote, if gold "trading even HINTS it intends to pierce that [$1,560 resistance] level, gold will race toward $1,575."

Somebody heard that hint today. Overnight gold traded down to 1540, and opened in NY at 1549.60. Stayed under $1,555 until 1:30, when the whispers hit the market. Not sure if that was the time that S&P announced it was downgrading Ireland's debt to junk status or not, but that would surely fit. Literally, next thing I saw was gold at $1,564, then $1,573.25.

Let's deal with that new all-time high close first. On 2 May gold topped at $1,556.70. Today's $13.10 rise took Comex gold to $1,561.90, a new high close. Two interpretations wrestle here: is it a double top, or a breakout beginning a new rally?

Remember the rule of thumb says a market must break out by at least 2% (some say 3%) to qualify as a breakout. That would take gold to $1,587.85 ($1,603.40 for 3%).

Here's the risk. Markets correct downward in three waves, A-down, B-up, C-down. I claim not to be able to discern these, but my untrained eye sees A-down to $1,462, then works at trying to find the rest of B & C. Then I recall that B waves are often so ebullient, especially in bull markets, that they exceed the high beforehand & appear to be breaking out to a new rally, until their bottom falls out in a C-Down that takes them to new lows.

And bear in mind that sudden, jerky moves can reveal strength beneath, but they also are handmaiden to tops.

NOTE WELL that I am NOT calling this move by that name, only explaining that gold's position is nowhere near as clear as the mindless enthusiasts would have you believe.

On the other hand (Mercy! I'm sounding like an economist!) gold has made a slightly higher new high, & a financial crisis is fueling it, & you'd have to be a central banker not to conclude that gold will drive higher for the next few days. Question is, how much higher?

Right here there's not enough tea in China or ham in Tennessee to tempt me to short gold. To turn bearish gold would first need to close below $1,540 then follow up quickly with a close below $1,520. Tomorrow, gold could easily touch $1,600, and run on to $1,625.

All things considered, I would buy here (did buy some today) & not mourn too long if gold fell back down. Why not, because I can't add & subtract? No, only because gold, despite whatever intervening tumbles, will end the year much higher, & scale price heights presently inconceivable even to its cheerleaders.

Did I mention that gold in euros made a new all-time high today, too? E1119, versus old high at E1088, 2.8% higher.

Here's an added twist to yesterday's silver story. Silver, as I noted, tends to outperform gold when stocks are strong, and underperform when stocks are weak. Historical fact, not treason. Yet more lurks beneath the surface. When gold rises, most observers expect silver to rise as well, so if you are jimmying the gold price, as Nice Government Men are wont to do, you need to jimmy silver, too, so that the market says, "Gee whiz! Gold is rising but silver is not -- maybe that means the gold rise is phony!" Just a thought.

And what brought that though bubbling to the surface of my boiling brain was silver's behavior.

Yesterday it lost 85c, to 3568.9c. Overnight it sank like a rock to 3475c, but just as swiftly arose from its bed of shame in the gutter, shook itself off, & shot up the stairs to close Comex at 3562.9c, THEN add another 53c in the aftermarket to 3616c.

Meanwhile all the gurus & media voices are intoning their mantra (stocks & silver, remember) that silver is falling in response to reduced global economic expectations. Yeah, maybe. And maybe not.

Add all that up, and I wouldn't short silver with your money. Silver's tussling with its 50 DMA at 3617c, & tomorrow is liable to paint a black eye on all those clever people and run for 3850c.

I'm just doing the best I can to stay long silver, but as quick as I buy it somebody calls & buys it away.

Another tasty tidbit: that wholesale buy discount on US 90% silver coin which stood on 98c under spot on 6 July, today has climbed to 68c under spot. This transpires after a long period when the discount has ranged 115c - 105c. I trust that premium to tell me when silver is serious about rising, and its screaming that right now.

European financial crisis is driving this gold rally, so don't get too excited. Once fuel is withdrawn from a fire, it dies out. Buy sparingly here, with one eye on the end of the crisis, & one on its worsening.

Gold silver ratio today rose a 0.50 to 43.838. One remember with sharp longing the Fall 2008 US financial crisis & the opportunity it afforded to swap gold for silver at ridiculously high ratios, and to gobble up silver on the cheap. We might see that again, & join in shooting fish in a rain barrel.

On 12 July 1690 Protestant forces led by William of Orange defeated the Roman Catholic army of James II in Ireland at the Battle of the Boyne.

MILESTONES OF AMERICAN CULTURE: On 12 July 1960 the first Etch-A-Sketch went on sale.

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
12-Jul-11 Price Change % Change
Gold, $/oz 1,561.90 13.10 0.8
Silver, $/oz 35.63 -0.06 -0.2
Gold/Silver Ratio 43.840 0.441 1.0
Silver/Gold Ratio 0.0228 -0.0002 -1.0
Platinum 1,732.80 2.30 0.1
Palladium 765.05 -22.60 -2.9
S&P 500 1,313.64 -15.88 -1.2
Dow 12,446.88 -58.88 -0.5
Dow in GOLD $s 164.74 -2.16 -1.3
Dow in GOLD oz 7.97 -0.10 -1.3
Dow in SILVER oz 349.35 -1.06 -0.3
US Dollar Index 76.02 0.05 0.1
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: 1,567.20      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,605.60 1,619.60 1,619.60
1/2 AE 0.50 799.27 822.78 1,645.56
1/4 AE 0.25 399.64 415.31 1,661.23
1/10 AE 0.10 167.69 173.96 1,739.59
Aust. 100 corona 0.98 1,521.58 1,533.58 1,564.55
British sovereign 0.24 367.07 387.07 1,644.33
French 20 franc 0.19 292.60 297.60 1,593.98
Krugerrand 1.00 1,575.82 1,589.82 1,589.82
Maple Leaf 1.00 1,583.20 1,607.20 1,607.20
1/2 Maple Leaf 0.50 820.82 830.62 1,661.23
1/4 Maple Leaf 0.25 411.39 415.31 1,661.23
1/10 Maple Leaf 0.10 159.85 180.23 1,802.28
Mexican 50 peso 1.21 1,877.14 1,892.14 1,569.32
.9999 bar 1.00 1,572.69 1,583.69 1,583.69
SPOT SILVER: 36.16      
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 25,368.20 25,668.20 35.90
US 40% silver 1/2s 0.30 10,224.70 10,439.70 35.39
100 oz .999 bar 100.00 3,626.00 3,666.00 36.66
10 oz .999 bar 10.00 363.60 368.10 36.81
1 oz .999 round 1.00 36.36 37.41 37.41
Am Eagle, 200 oz Min 1.00 37.41 39.31 39.31
SPOT PLATINUM: 1,732.80      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Am Eagle 1.00 1,732.80 1,832.80 1,832.80
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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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