The Moneychanger
Daily Commentary
Monday, 8 August a.d. 2011 Browse the commentary archive

Y'all need to understand one thing: I have no crystal ball. So what I say about the US debt downgrade may be right or wrong. I hope it's logical, at least.

Timing was impeccable, after all markets were closed & everyone was trapped, after Europe had begun disintegrating earlier in the week, after the Dow had dropped 500+ points. It appeared that S&P INTENDED to push the crisis over the cliff.

Doesn't really change much, as US government hasn't been creditworthy for some time, but in the America where we elect actors to the presidency, etc., appearance is everything. Thus the debt downgrade has accelerated the decline of confidence and, ultimately of the US dollar.

In the event stocks were hurt worse than anything. US Treasury debt was up across the board, perhaps benefiting from money fleeing stocks, but up nonetheless. Stocks stepped into a bottomless well. Gold jumped an understated $61.40 [sic], & silver couldn't decide whether to rise or fall so finally rose 117.7c.

Most earnest lesson to draw from the sneak-attack debt downgrade is YOU MUST BE POSITIONED BEFORE A CRISIS. Fiddling around trying to buy silver or gold 5% cheaper or sell stocks 5% dearer or eke a little more out of real estate is fatal. Liquidity is everything, & in a crisis, it's more.

And maybe it's just my suspicious nature speaking, but this timing was too perfect to be co-incidental. Someone big, bigger than the NGM, wants to push the world economy into a panic. Surely they have nothing good for you and me on their agenda.

Or let us act like bank-trained economists: surely major inequities lurk yet upon bank, corporate, & government balance sheets and as they are discovered much more economic turmoil will follow.

Or, let me give you the Tennessee rule for avoiding bar-fights: LEAVE THE BAR BEFORE THE FIGHT BEGINS.

I suppose the Nice Government Men around the world, certainly those who work for central banks, have since last Friday evening been feeling like they were flossing their teeth with barbed wire: stem the tide of euro-selling, turn aside the flood into the dollar, keep the yen out of it. I would feel sorry for them if they were really nice, but truth is, if you work in a sewer, you have no right to complain about your bill for cologne.

US DOLLAR INDEX chart makes little sense, rising from 73.85 on Wednesday to 75.40 on Thursday, dropping right back down to 74 on Monday morning, then rising back to 75. Trading now at 74.86, up 45.8 basis points or 0.59%. Dollar index today closed above its 20 dma (74.61) but traded in a net range from 74 to 75 (NGM like round numbers), therefore no great change. But when you parse that with the euro down 0.82% at 1.4173, you get the feeling the euro is very sick. Once it breaks 1.3950 it will want to slide for 1.2000, & won't mind sliding square over the NGM & parting their hair. In the Land of the Rising Sun the NGM had sliced their Yen to ribbons, but the ribbons came back to life today and gapped up to 129c/Y100 (Y77.52/$). Lots of scared money racing around the world looking for a home. Dollar will keep on trying to rise. Investors seem to believe it's better to take your chances with the AA+ US government & its dollar than stocks.

Stocks continued plunging over the cataract that began about 1 August. Dow today closed on its low at 10,809.85, down a staggering 634.76 points or 5.55%. S&P500 bettered (or is that "worsed"?) that with a 79.92 point drop, down 6.66% to 1,119.46. I'm beginning to believe that I really WASN'T seeing apparitions when I kept on warning about that broadening top in stocks. My 10,700 Dow target doesn't seem so silly now.

I warned a few days ago that the Dow in Gold Dollars (DiG$) was breaking down, sending stocks lower against gold. From G$157.10 (7.6 oz) eight days ago, the Dow has now reached G$130.03 (6.29 oz).

Stocks: the perfect picture of how profitable & strategically wise a partnership with the US government really is.

GOLD broke above its upper trading channel line today by 1.8%. What meaneth this portent? It could mean nothing, could be a simple throwover caused by momentary enthusiasm, then fade and drop. OR, it could signal a much higher move. How much higher? When a market trades over an upper trading channel line, you can double the channel, like flipping the channel over so that the bottom line is over the top. If the channel is 100 points wide and breaks out, just add 100 points above that to draw the new channel line. Right now that channel is about 170 points wide, so add that to, say, $1,680 & you get something like $1,850. Point & figure target is about 2090. I hasten to add that those are not predictions, just numbers that say something about expectations.

If the panic isn't reined in within a couple of days, then gold will simply keep on rising. Limits here are plain: a close below $1,675 turns gold down. Two more days' higher closes above today's $1,710.20 ) mean gold has launched another rally.

I hate to chase markets, but I have been buying gold here. Long term even if that proves a timing mistake, it won't make much difference as gold will double or triple from here at least.

SILVER has not yet proved it will tag along with gold, even though a 117.7c rise today to 3937.4c suggests it wants to. However, today's high at 4029c doesn't even recover half the ground silver lost from Thursdays 4224c high to Friday's 3749c low. Chart might be pointing at higher prices since today's 3843c low floated so far about Friday's 3750c low. However, silver must first beat 4000c without any excuses, then speed up toward 4200c and crash that. Otherwise, we have to expect that silver will follow the direction if not the size of stocks' fall.

Above all, silver must hang on above 3750c.

Gold/silver ratio rose today to 43.434, not far from the reaction high at 44.8. The ratio is widening out, which whispers silver will not join gold for the ride.

Crisis will worsen. Gold will rise. Silver is wavering, drawn to the downside as scared money piles into gold.

Remember that in crises that central banks & their governments have only two weapons: Liquidity & Blarney. They will be vigorously shooting those two cannon in the next few days. Little Timmy Geithner, Bernard O'Bama, Ben the Bernancubus & all the rest will be trotted out to remind you how sound the economy is & how wonderful stocks are. Right, and if frogs had wings they wouldn't bump their little butts when they jump.

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Spot gold basis for all prices above is $1,720.45 ORDERING INSTRUCTIONS:

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Repeat, you must include your complete name, address, and phone number. Our clairvoyant quit without warning last week and we can no longer read your mind.

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6. We allow fourteen (14) days for personal checks to clear before we ship. If your hurry is greater than that, you can send a bank wire. Once we ship, the post office takes four to fourteen days to get the registered mail package to you. All in all, you'll see your order in about one month if you send a check.

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
8-Aug-11 Price Change % Change
Gold, $/oz 1,710.20 61.40 3.7
Silver, $/oz 39.37 1.18 3.1
Gold/Silver Ratio 43.430 0.269 0.6
Silver/Gold Ratio 0.0230 -0.0001 -0.6
Platinum 1,716.00 -3.00 -0.2
Palladium 719.20 -20.90 -2.8
S&P 500 1,119.46 -79.92 -6.7
Dow 10,809.85 -634.76 -5.5
Dow in GOLD $s 130.66 -12.81 -8.9
Dow in GOLD oz 6.32 -0.62 -8.9
Dow in SILVER oz 274.54 -25.08 -8.4
US Dollar Index 74.86 0.46 0.6
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: 1,720.45      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,765.18 1,779.18 1,779.18
1/2 AE 0.50 882.59 903.24 1,806.47
1/4 AE 0.25 444.09 455.92 1,823.68
1/10 AE 0.10 184.09 190.97 1,909.70
Aust. 100 corona 0.98 1,674.58 1,687.58 1,721.67
British sovereign 0.24 402.97 407.97 1,733.09
French 20 franc 0.19 319.60 324.60 1,738.63
Krugerrand 1.00 1,734.21 1,748.21 1,748.21
Maple Leaf 1.00 1,735.45 1,753.45 1,753.45
1/2 Maple Leaf 0.50 901.09 911.84 1,823.68
1/4 Maple Leaf 0.25 451.62 455.92 1,823.68
1/10 Maple Leaf 0.10 175.49 197.85 1,978.52
Mexican 50 peso 1.21 2,057.58 2,072.58 1,718.99
.9999 bar 1.00 1,726.47 1,737.47 1,737.47
SPOT SILVER: 39.42      
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 27,506.05 27,831.05 38.92
US 40% silver 1/2s 0.30 11,156.90 11,381.90 38.58
100 oz .999 bar 100.00 3,917.00 3,962.00 39.62
10 oz .999 bar 10.00 394.20 401.70 40.17
1 oz .999 round 1.00 39.52 40.32 40.32
Am Eagle, 200 oz Min 1.00 41.17 42.07 42.07
SPOT PLATINUM: 1,716.00      
Plat. Am Eagle 1.00 1,716.00 1,816.00 1,816.00
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© 2015 Little Mountain Corporation, d.b.a. The Moneychanger. All rights reserved. May not be republished in any form, including electronically, without our express permission.

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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