The Moneychanger
Daily Commentary
Thursday, 21 July a.d. 2011 Browse the commentary archive

The EU is pulling an old trick for bailing out banks. setting up a special fund or agency to dumped all the bad paper into, then working it out over time. US government pulled the same trick with the early 1990s savings & loan crisis. They set up the Resolution Trust Corp. to manage the insolvent S&Ls & sell off their pile of bad mortgages & property and ease the loss off onto the taxpayer a little at a time. Europeans call it the European Financial Stability Fund (EFSF), but it is the same "dump the slop into one bucket" strategy. ECB agreed to "maybe" accept Greek collateral if Greece defaults. In other words, they will.

So for the nonce, the crisis is papered over. Stock markets took that as good news -- they would have taken the atomic bombing of Paris as good news today. Dow rose 152.50 to 12,724.41 (+1.21%) & the S&P500 added 17.96 (1.35%) to 1,343.80.

Dow broke thru 12,600 on the open, in fact, to 12,750 & stalled there. Now the Dow has reached the point where it stalled before, so two roads are possible: it fails, and begins a long plunge. Or, it will clear the 12,750 level, move higher, complete a double top with the last high of 12,876, and THEN plunge.

Either way, stocks remain the eau de polecat in the Investment Parfumerie. Stay away, because once you get that stuff on you, you can't wash it off with lye soap.

Zut alors! The word about the EU fix must have leaked out early, because the dollar began falling from the NY open and never stopped till it neared 74. Traded sideways the rest of the day, then broke down to 73.80. Meanwhile the euro jumped to 1.4436, up 1.53%. Doesn't matter. Choosing between the dollar and the euro is like choosing off the salad bar in a hog sty, but I'd choose the dollar every time. Euro remains in its down trend, dollar broke down and will revisit 73.50 or 72.70. NGM will see to that.

GOLD took a jawbuster today & fell $9.90 to $1,586 at Comex close. We're right back where we were on Tuesday, only with more technical evidence gold will move lower. Could stop at $1,560 support, or reach 50 DMA at $1,532 (or $1,540 support). Any close above $1,605 gainsays that & turns gold up like an express train.

Not sure yet what we are seeing, but one of two transmogrifications. First may be a small correction to the latest breakout that returns to somewhere near 50 DMA, then shoots again skyward. Second might be the last leg down of the correction that began end April. That makes the high Tuesday the top of a B-wave in an A-down, B-up, C-down correction, and we might see lower prices than we have yet, i.e., lower than $1,462.

Either way, I expect gold by 31 December to be trading higher than it is today.

Ahh, this catches the eye! Silver today did not fall nearly to its Tuesday or Wednesday lows (3850c & 3814c). On Comex it lost 60.9c to close at 3893.7c, but it plainly has rolled over & should move lower. Will 3800c stop it? I don't know. Silver stands in the same case as gold. If it dips below 3780, you have to reckon with 3350c again. A close above 4088c contradicts that.

Be patient. All this Greek-rescue & debt-ceiling theater will be over soon, & more ugly monetary realities will emerge, pushing both metals higher. The July rally in silver & gold vividly illustrate how nervous the world is. None of that will change or depart.

On 22 July 1861 took place the Battle of Manassas Junction, Virginia, along the Bull Run creek. Union forces were so confident of victory that crowds of onlookers left Washington, following them in buggies packed with picnic hampers. Confederate forces wavered, then at the propitious moment, General Bee rallied his South Carolinians with the immortal cry, "There stands Jackson like a stone wall! Rally on the Virginians!" They did, and the rest was history. The Confederates sent the yankee army in panicked flight to Washington, but the nemesis of the Confederacy, CSA General PGT Beauregard, always present, it seemed, to snatch defeat from the jaws of victory, failed to follow his victory with pursuit and destruction of the enemy.

General Bee was killed, but the South acquired an immortal: Stonewall Jackson, the mighty, the mysterious, the invincible.

On 21 July 1588 a rangy fleet of English ships took on the juggernauts of the Spanish Armada & thanks to their superior speed and maneuverabliity managed to whip them. It was the beginning of the end for the Spanish empire, and the beginning of the English. Yet England was not yet an empire, and the victory remains a monument of free men fighting for home and hearth against an empire.

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
21-Jul-11 Price Change % Change
Gold, $/oz 1,586.80 -9.90 -0.6
Silver, $/oz 38.94 -0.61 -1.5
Gold/Silver Ratio 40.750 0.377 0.9
Silver/Gold Ratio 0.0245 -0.0002 -0.9
Platinum 1,784.10 9.30 0.5
Palladium 806.50 12.70 1.6
S&P 500 1,343.80 17.96 1.4
Dow 12,724.41 152.50 1.2
Dow in GOLD $s 165.77 3.02 1.9
Dow in GOLD oz 8.02 0.15 1.9
Dow in SILVER oz 326.79 8.89 2.8
US Dollar Index 74.04 -0.75 -1.0
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SPOT GOLD: 1,586.00      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,624.86 1,638.86 1,638.86
1/2 AE 0.50 808.86 832.65 1,665.30
1/4 AE 0.25 404.43 420.29 1,681.16
1/10 AE 0.10 169.70 176.05 1,760.46
Aust. 100 corona 0.98 1,539.83 1,551.83 1,583.18
British sovereign 0.24 371.48 391.48 1,663.03
French 20 franc 0.19 296.11 301.11 1,612.78
Krugerrand 1.00 1,593.14 1,607.14 1,607.14
Maple Leaf 1.00 1,602.00 1,626.00 1,626.00
1/2 Maple Leaf 0.50 830.67 840.58 1,681.16
1/4 Maple Leaf 0.25 416.33 420.29 1,681.16
1/10 Maple Leaf 0.10 161.77 182.39 1,823.90
Mexican 50 peso 1.21 1,899.65 1,914.65 1,588.00
.9999 bar 1.00 1,591.55 1,602.55 1,602.55
SPOT SILVER: 39.02      
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 27,037.73 27,387.73 38.30
US 40% silver 1/2s 0.30 11,066.93 11,281.93 38.24
100 oz .999 bar 100.00 3,911.50 3,951.50 39.52
10 oz .999 bar 10.00 392.15 396.65 39.67
1 oz .999 round 1.00 39.22 40.27 40.27
Am Eagle, 200 oz Min 1.00 40.27 42.17 42.17
SPOT PLATINUM: 1,784.10      
Plat. Am Eagle 1.00 1,784.10 1,884.10 1,884.10
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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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