The Moneychanger
Daily Commentary
Tuesday, 2 August a.d. 2011 Browse the commentary archive

Well, silver & gold fooled me yesterday and I got an answer to why platinum and palladium rose yesterday when silver & gold fell. I salvaged something by warning y'all not to write gold off yet. More below.

DOW IN GOLD DOLLARS in the last three days has fallen nearly to its March 2009 low of G$145.37 (7.032 oz), stopping today at G$149.40 (7.227 oz). Target for this fall might be the last low, but the turnaround there will be brief. Better target is G$114.28 or 5.528 oz of gold.

Problem with reading markets is that the market's enthusiasm or depression is catching. Somehow you have to guard yourself from believing a falling market, especially one that has fallen a long way recently, will just keep falling for every. You have to keep looking for that rally, and vice versa for rising markets.

Bur mercy's sake, what can you say about stocks? The Dow today fell 265.87 points, crashing through support at 12,000 like pushing through wet toilet paper, never even slowed down. That fall took it to the last intraday low (11,863) and way below the 200 day moving average (11,987).

Well, take a deep breath. Dow is in a bear market, & has spent much of its life since 2000 beneath that 200dma as bear markets always do. This time the 200dma might catch it, but sooner or later it will sink beneath that wave and not be seen again.

Add to this the Dow's plunging after the uncertainty of the debt ceiling drama was removed. Shouldn't that good news make it rise? Falling on good news, well, as Tarzan's safari leader would say, is "Bad juju, Bwana." You can almost hear those drums beating through the jungle.

Then there's the little item of that double/double top the Dow traced out in July, matching the May top.

I add all that up and conclude the Dow might rally from here, but more likely it will drop to 11,555, the last low. If it fails to get a grip there, look for 11,258.

Stocks -- they are as reliable as a cat's love or a dog's compliment.

US DOLLAR INDEX continues to confirm that it has bottomed. Grabbed another 21.2 basis points today to close at 74.474. Needs to better its 20dma at 74.75, then the 50 dma at 74.78, and then will draw a bead on 76.

By the way, I looked at a long term dollar index chart today, back to 1971, and it projects a dollar index move to -- y'all, I am NOT making this up -- 39. Simple head & shoulders target measurement, which almost always works.

Still want to hold on to those dollar-denominated investments? Certificates of Deposit? Bonds? Annuities? Any promise to repay dollars tomorrow is a guaranteed loser. Happy de-capitalization! Merry expropriation! Jolly impoverishment!

Euro closed 1.4196, continuing to decline toward its intrinsic value of zero. Japanese yen rose to 129.74 (Y77.07/$).

My upside target for gold when it broke through $1,560 was $1,675. Right now it's trading over $1,660. Yeah, yeah, yeah, ought to slow down, ought to correct, but . . .

Why did gold rise after what should have been for gold the BAD news of the debt ceiling deal? Why did it do the same after the Greek bailout deal?

Maybe no more complicated than gold has the bit between its teeth in a third wave up and it will astonish even its wildest fans. Don't know. Working at finding a higher target.

Oh, & don't forget this: when some uninformed clown, paid by media or government or otherwise, tells you that silver & gold are in a bubble, ask him this: If the dollar index at 74.5 means gold at $1,660, what does the dollar index at HALF that value imply for gold? A double? More?

Gold rose 1.4%, silver rose 2% or 78.3c to close Comex at 4008.1. In the aftermarket shorts panicked and now it's trading at 4082c.

4040c was the kryptonite barrier, & when silver leapt over that, why not run farther? May take a breather tomorrow, but silver has its eye on 4100c and higher.

Markets are demoralized and confused -- well, stocks & currencies are, while silver & gold were a bit bewildered then roared. Still, this sort of volatility often accompanies turnarounds, so be careful.

Both metals may take a breather tomorrow. As long as gold remains higher than $1,620 and silver above 3900c, they will move higher.

On 2 August 1832 1,300 Illinois militia defeated the Sac & Fox Indians, ending the Black Hawk war. It was Abraham Lincoln's only taste of battle. For the rest, he kept safely behind the lines.

On 2 August 1887 Rowell Hodge patented barbed wire, and changed the world.

On 3 September 2011 we will host our yearly Bodacious Hoedown at the Top of the World farm. More details as they feed them to me. So far I know: food, dancing, Old Time band, games (one or more of which I will be the goat for.)

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
2-Aug-11 Price Change % Change
Gold, $/oz 1,641.90 22.90 1.4
Silver, $/oz 40.08 0.78 2.0
Gold/Silver Ratio 40.960 -0.233 -0.6
Silver/Gold Ratio 0.0244 0.0001 0.6
Platinum 1,795.50 2.80 0.2
Palladium 827.40 -0.60 -0.1
S&P 500 1,254.05 -32.89 -2.6
Dow 11,866.62 -265.87 -2.2
Dow in GOLD $s 149.40 -5.49 -3.5
Dow in GOLD oz 7.23 -0.27 -3.5
Dow in SILVER oz 296.07 -12.66 -4.1
US Dollar Index 74.47 0.21 0.3
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SPOT GOLD: 1,660.45      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,696.98 1,710.98 1,710.98
1/2 AE 0.50 851.81 871.74 1,743.47
1/4 AE 0.25 428.60 440.02 1,760.08
1/10 AE 0.10 177.67 184.31 1,843.10
Aust. 100 corona 0.98 1,616.18 1,629.18 1,662.09
British sovereign 0.24 388.92 393.92 1,673.39
French 20 franc 0.19 308.46 313.46 1,678.93
Krugerrand 1.00 1,675.39 1,689.39 1,689.39
Maple Leaf 1.00 1,675.45 1,693.45 1,693.45
1/2 Maple Leaf 0.50 869.66 880.04 1,760.08
1/4 Maple Leaf 0.25 435.87 440.02 1,760.08
1/10 Maple Leaf 0.10 169.37 190.95 1,909.52
Mexican 50 peso 1.21 1,985.82 2,000.82 1,659.47
.9999 bar 1.00 1,666.26 1,677.26 1,677.26
SPOT SILVER: 40.87      
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 28,292.55 28,617.55 40.02
US 40% silver 1/2s 0.30 11,584.65 11,809.65 40.03
100 oz .999 bar 100.00 4,062.00 4,107.00 41.07
10 oz .999 bar 10.00 408.70 416.20 41.62
1 oz .999 round 1.00 40.97 41.77 41.77
Am Eagle, 200 oz Min 1.00 42.62 43.52 43.52
SPOT PLATINUM: 1,795.50      
Plat. Am Eagle 1.00 1,795.50 1,895.50 1,895.50
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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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