The Moneychanger
Daily Commentary
Monday, 1 August a.d. 2011 Browse the commentary archive

I wish I had thought of something Steve Saville of www.speculative-investor.com mentioned in his last commentary. While all the media Mo-Ros were propagandizing a US credit default, the market was saying something else. Yield on the 10 year US treasury note plummeted on Friday. Remember the rule for bonds, "Yield rises, price falls; yield falls, price rises." Therefore, a lot of savvy investors on Friday were piling in to US Treasuries, well aware that the US was not about to default. They were right.

First, deal with the questions: when silver & gold & stocks all dropped, why did platinum & palladium rise? What does THAT say? Anomaly or augury?

Comrade O'Bama & the Debt Ceiling Drama worked markets over. There is a deal, there isn't a deal. Stocks tried to rise on the open, then about 10:00 fell into negative-land. By noon the Dow was below 12,000 barely, but FEAR NOT! Help appeared (thanks, Nice Government Men!) to bring the Dow nearly to unchanged at 12,132.49, down 10.75 or 0.09%. Odd, wonder why the S&P500 dropped 5.34 or 0.41% to 1,286.94. Sloppy work, NGM!

Stocks have now worked their way nearly to their 200 DMA (for the Dow, 11,982.96). Even if it were dead as a quarter-inch thick armadillo in the road, the Dow ought to bounce off of that. (Which reminds me, do y'all know what an armadillo's defense mechanism is? They jump straight up flat-footed. Which may explain why so many armadillo corpses litter the road, as a straight-up jump gets them just about truck-bumper high.)

But looking out more than a week or two, I can't see anything but a massive double top in the Dow, confirmed by a second double top (two in July), & a decline to a lower low for the move. Me, I'm not attracted to that sort of action, any more than I'm going to shoot craps when a man's dice have two 2s on both cubes.

Stocks -- the biplane of Investment Aerodynamic Design.

Here's why the debt ceiling deal did nothing: it made no structural changes. US economic woe arises from government spending contributing over 50% of income. Get it? Government is 50% of the economy. Until that is reduced, no change has taken place. No solution, only more play-acting.

The US dollar took a goose from the debt ceiling "solution." From the last price I saw Friday until now, the dollar index rose 44.4 basis points or 6/10%. Five day chart made a sort-of spike bottom down to 73.6, but it rose clean back to Friday's high at 70.50. Expect the dollar to rise. It may take it a while to work out of this hole, but it will.

Euro was brought back to reality today with a 1.4250 close, down 1.06% and beneath its 20 & 50 day moving averages (1.4269 & 1.4319). Lower, lower. Yen came off its high horse today after its highest close ever on Friday. Closed Y77.24/$ (129.46c/Y100). Expect Japanese NGM to begin attacking the yen to bring it down.

Gold reached $1,635 on Friday, and about the same today. Looks like a double top, & a close below $1,615 then $1,605 will confirm that.

Gold was confused today, dropping down to $1,610 at 10:30, then rallying clean to $1,630 by 11:00 am. Afterward it rolled over and whimpered around $1,620.

Any close above $1,630 will gainsay my conclusion that gold will decline. As confused as today has been, it might come back. Don't discount it too quickly.

SILVER has been trending downward since last Wednesday, and nothing changed today: lower highs and lower lows. 3900c stopped silver today, but will that stop silver tomorrow? Just beneath us at 3860c is the 20 day moving average. If/when silver crosses that, momentum traders will sell more.

What target? Possible that silver will re-visit its 200 DMA at 3334c. Comex today closed at 3929.8, down 79.4c. 3800c is the line silver must hold if it is not destined to revisit the 200 DMA.

On 1 August 1291 the Three Forest Cantons of Switzerland signed the Everlasting Union. Over time it grew into modern Switzerland from the mountainous cantons of Uri, Schwyz, and Unterwalden. The signers were called Eidgenossen, or Oath-fellows. Switzerland is about the only country I can think of in history hat has successfully maintained self-government for more than seven centuries. In the US it lasted only 80 years.

August 1 is also Lammas (loaf-mass or bread feast) Day, the festival of the wheat harvest. Custom was to bring to church a loaf made from the new crop. The Anglo-Saxon Chronicle calls it the "feast of first fruits." Clearly this didn't start in Tennessee, where the wheat harvest ends early in June.

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
1-Aug-11 Price Change % Change
Gold, $/oz 1,619.00 -9.30 -0.6
Silver, $/oz 39.30 -0.79 -2.0
Gold/Silver Ratio 41.200 0.584 1.4
Silver/Gold Ratio 0.0243 -0.0003 -1.4
Platinum 1,792.70 14.60 0.8
Palladium 828.00 1.90 0.2
S&P 500 1,286.94 -5.34 -0.4
Dow 12,132.49 -10.75 -0.1
Dow in GOLD $s 154.91 0.76 0.5
Dow in GOLD oz 7.49 0.04 0.5
Dow in SILVER oz 308.73 5.85 1.9
US Dollar Index 74.31 0.29 0.4
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SPOT GOLD: 1,619.30      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,656.54 1,670.54 1,670.54
1/2 AE 0.50 830.70 850.13 1,700.27
1/4 AE 0.25 417.98 429.11 1,716.46
1/10 AE 0.10 173.27 179.74 1,797.42
Aust. 100 corona 0.98 1,576.13 1,589.13 1,621.23
British sovereign 0.24 379.28 384.28 1,632.44
French 20 franc 0.19 300.81 305.81 1,637.98
Krugerrand 1.00 1,633.87 1,647.87 1,647.87
Maple Leaf 1.00 1,634.30 1,652.30 1,652.30
1/2 Maple Leaf 0.50 848.11 858.23 1,716.46
1/4 Maple Leaf 0.25 425.07 429.11 1,716.46
1/10 Maple Leaf 0.10 165.17 186.22 1,862.20
Mexican 50 peso 1.21 1,936.61 1,951.61 1,618.65
.9999 bar 1.00 1,624.97 1,635.97 1,635.97
SPOT SILVER: 39.33      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 31,000.00 33,000.00 43.14
VG+ Peace dollar 0.77 30,000.00 32,000.00 41.83
90% silver coin bags 0.72 27,191.45 27,516.45 38.48
US 40% silver 1/2s 0.30 11,130.35 11,355.35 38.49
100 oz .999 bar 100.00 3,908.00 3,953.00 39.53
10 oz .999 bar 10.00 393.30 400.80 40.08
1 oz .999 round 1.00 39.43 40.23 40.23
Am Eagle, 200 oz Min 1.00 41.08 41.98 41.98
SPOT PLATINUM: 1,792.70      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Am Eagle 1.00 1,792.70 1,892.70 1,892.70
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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.
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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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