The Moneychanger
Daily Commentary
Tuesday, 19 July a.d. 2011 Browse the commentary archive

The proverb says, "A cobbler should stick to his last." The "last" is the form a cobbler makes shoes on, so it means that you should stick to what you do best & most profitably..

In the last 2-1/2 months I have been steadily whipped in trying to find a bottom in silver & gold's reaction off their end-April highs. They simply have not unfolded as I expected. Problem is, trying to get a little better price for people, I have told some to hold off for those better prices, just in time to watch silver & gold skyrocket.

In a bull market, waiting to buy is almost always -- with few exceptions -- a mistake Your shoemaker's last is identifying & aligning yourself with the primary trend that will last 15 - 20 years. Your last is not trying to scalp out silver & gold at the correction's plumb bottom. If you buy and it drops 10%, it won't matter in the long run for the market will double, triple or quadruple. The trend will bail out your worst timing mistakes.

So don't ever expect to hear me say "Wait to buy" again. I'll tell you what I think the market is doing, but y'all need to remember that the ONLY strategy for a bull market is to buy and keep on buying. The trend is your friend.

Today y'all saw a very overbought gold & silver market spooked by silly, inconsequential news. The euro eased up on hopes that an EU summit would fix the sovereign debt crisis (it won't), then O'Bama said the budget plan floated by the "Gang of Six" senators might break the impasse over raising the federal debt ceiling (not likely).

Even if the Gang of Six plan were adopted, it would only cut $4 trillion over 10 years -- they have to multiply the reductions by 10 years, otherwise you couldn't find them with an electron microscope. But multiply a $3.5 trillion budget, which WILL NOT stop growing, by 10 to $35 trillion, then divide $4 trillion by that. It's a minute 11.4%. Friends, when over 30% of income in the US comes from direct federal government spending, that's not a dwarf star in a dark sky.

The European crisis will be papered over with a "re-scheduling" which will bail out the banks & feed those tapeworms even more fatly and permanently on the victim countries. The debt ceiling question is 100% theater, as every goof involved knows they have no choice and no will but to raise the debt ceiling. They are quibbling about $100 million. If you were spending too much on your $2000 monthly budget & tightened your belt by a like amount you would be struggling along on only $1,999.94. Drama, the theater of the despicable.

But the Beast of Muddy Brain can't see it, & so is sucked in to its own destruction & deceit, flaring in empty hope when O'Bama speaks a kind word toward a deal.

To fix the problem requires a will to let the bankrupt fail, let unemployment rise, let bad debt be written off, suffer two years of economic agony, & never again be seduced by the Keynesian stupidity that government can guarantee prosperity by borrowing & spending. Or that individuals can prosper by borrowing to consume. Since you won't see that until Ben Bernancubus can walk on water, you will see more of the same stupidity until finally the machine grinds to a hyperinflationary halt & a dictator arises to decorate the lampposts with bankers & their politician flunkies. Pray for a better outcome.

TODAY stocks, oversold & grasping at straws, jumped in a single mighty bound on open from below 12,400 Dow to above 12,500 & then to 12,600. Dow closed up 202.26 (1.83%) at 12,587.42 & S&P500 added 21.29 to end up 1.63% at 1,326.73

Think. Ponder. Savor the thought. Once upon a time stock markets were driven by economic realities; today they are driven by political will o' the wisps.

Stocks have become the Bigfoot in the Investment Menagerie. Do yourself a favor: get out of the middle of the road. Eighteen wheeler's coming. Sell your stocks.

Dollar index took a blow to the chin today, dropping 26.2 basis points to 75.221 (down 0.34%). Remains above support at 74.80 and above 20 & 50 DMAs (75.10 & 75.02). Uptrend unbroken.

Euro put a little profit in day traders' pockets today, but without altering anything on the chart. Remains in a downtrend. Of course, if the Euro summit on Thursday publishes some bogus "solution", euro will jump, probably to 1.4500. But if they really do solve anything, well, I'll grow me a tail, swing through the trees and start eating bugs & leaves for a living.

GOLD hit $1,609.89 today and was rolling along for what anyone might have expected to be an easy down day. Comex closed down only $1.20 at $1,600.90 after a $1,609.90 high. Then came the announcement shortly after the close, and in less than half an hour after market gold dropped to $1,585, then to $1,582.30. Support lies at $1,575 - $1,580, then $1,560. Lowest extent of the fall will probably hit tomorrow, for I don't expect this to last long. Unless gold drops significantly below $1,560, I believe it has begun a new rally. But watch $1,560, and the 20 DMA at $1,430.

Absent that gainsaying below-$1,560 close, gold should reach $1,675 before it really corrects.

SILVER had lost only 12.2c by the time Comex closed at 4021.1c. Then came the "News" & in a few more than 30 minutes silver had lost 100c, then hit a low at 3853c. It quickly recovered and climbed above 3900c in the aftermarket, but will take another blow tomorrow. Support comes at 3850c and at 3800.

I will buy at 3850c and buy more at 3800c. Yes, I am aware this all might be a trap and silver might drop thru the whole support area 3350c - 3850c, but I'll buy some anyway.

On 19 July 1799 a French soldier in Napoleon's expedition in Egypt discovered the Rosetta Stone. It was a tablet with hieroglyphics, demotic transcription, and a Greek translation. It was the key that allowed translation of hieroglyphics.

On 19 July 1814 was born the one man who did more to improve universal manners than any other American: Samuel Colt, perfecter of the revolving pistol.

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
19-Jul-11 Price Change % Change
Gold, $/oz 1,602.10 12.30 0.8
Silver, $/oz 40.21 -0.12 -0.3
Gold/Silver Ratio 39.840 0.425 1.1
Silver/Gold Ratio 0.0251 -0.0003 -1.1
Platinum 1,767.80 -7.40 -0.4
Palladium 787.25 -8.50 -1.1
S&P 500 1,326.73 21.29 1.6
Dow 12,587.42 202.26 1.6
Dow in GOLD $s 162.41 1.39 0.9
Dow in GOLD oz 7.86 0.07 0.9
Dow in SILVER oz 313.03 5.96 1.9
US Dollar Index 75.16 -0.33 -0.4
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SPOT GOLD: 1,585.20      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,622.45 1,636.45 1,636.45
1/2 AE 0.50 808.45 832.23 1,664.46
1/4 AE 0.25 404.23 420.08 1,680.31
1/10 AE 0.10 169.62 175.96 1,759.57
Aust. 100 corona 0.98 1,539.05 1,551.05 1,582.38
British sovereign 0.24 371.29 391.29 1,662.24
French 20 franc 0.19 295.96 300.96 1,611.98
Krugerrand 1.00 1,593.92 1,607.92 1,607.92
Maple Leaf 1.00 1,601.20 1,625.20 1,625.20
1/2 Maple Leaf 0.50 830.25 840.16 1,680.31
1/4 Maple Leaf 0.25 416.12 420.08 1,680.31
1/10 Maple Leaf 0.10 161.69 182.30 1,822.98
Mexican 50 peso 1.21 1,898.69 1,913.69 1,587.21
.9999 bar 1.00 1,590.75 1,601.75 1,601.75
SPOT SILVER: 39.18      
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 27,155.70 27,505.70 38.47
US 40% silver 1/2s 0.30 11,115.60 11,330.60 38.41
100 oz .999 bar 100.00 3,928.00 3,968.00 39.68
10 oz .999 bar 10.00 393.80 398.30 39.83
1 oz .999 round 1.00 39.38 40.43 40.43
Am Eagle, 200 oz Min 1.00 40.43 42.33 42.33
SPOT PLATINUM: 1,767.80      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Am Eagle 1.00 1,767.80 1,867.80 1,867.80
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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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