The Moneychanger
Weekly Commentary
Friday, 12 August a.d. 2011 Browse the commentary archive
Here's the weekly scorecard:
  5-Aug 12-Aug Change % Change
Silver, cents/oz. 3,819.70 3,910.10 90.40 2.4
Gold, dollars/oz. 1,648.80 1,740.20 91.40 5.5
Gold/silver ratio 43.166 44.505 1.340 3.1
Silver/gold ratio 0.0232 0.0225 -0.0007 -3.0
Dow in Gold Dollars (DIG$) 143.65 133.86 -9.79 -6.8
Dow in gold ounces 6.95 6.48 -0.47 -6.8
Dow in Silver ounces 299.97 288.20 -11.77 -3.9
Dow Industrials 11,457.93 11,269.02 -188.91 -1.6
S&P500 1,201.16 1,178.81 -22.35 -1.9
US dollar index 74.49 74.58 0.09 0.1
Platinum 1,719.00 1,796.00 77.00 4.5
Palladium 740.10 743.55 3.45 0.5

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Big surprise this week was silver, refusing to drop below 3700c. Gold gained -- choke! -- 5.5%. Stocks did worse than 1.6% implies, dollar stayed flat, and platinum shot up 4.5% & left palladium in the dust.

Here's what the Dow posted this week: Down 634.76, up 429.92, down 519.83, up 423.37, up 125.71 for a net loss of 175.59. Intraday low for the week was 10,604.70, which fulfilled my target of 10,900 from the head & shoulders & 10,700 from previous trading and lateral support. Wherefore we can guess that stocks will mount a sickly rally from here. They are far below their 200 dma (11,991.67), & could reach that or a little higher. Volatility this week was due certainly to panic in the market generated by US debt downgrade (insubstantial but damaging to psychology) & European sovereign debt crisis. No doubt volatility was supercharged also by the yankee government's Plunge Protection Team.

Be all that as it may, the Dow is doomed to move much, much lower, but not immediately. Close below 10,700 gainsays my cheery optimism & turns the Dow down into the nether regions. If you are one of those laggards who still owns stocks, better seize ANY rally like a seat on the last train out of Moscow in November 1917.

STOCKS -- they are the non-nutritious filler in the Box of Investment Breakfast Cereal.

The Dow in Gold Dollars' last low for the move that began in August 1999 came on 9 March 2009 at G$147.24 (7.123 oz). On 10 August the DiG$ made a new low for the 12 year move at G$124.40 (6.018 oz). Since August 1999 the Dow has lost 80% against gold, & will lose another 80%. Ditto silver.

US DOLLAR INDEX is range trading between 75 & 74.50. Panic spilling over from Europe is sending flight capital into the dollar, & the NGM of all the central banks, who work together like fire ants, are trying to keep the euro (destined for US$1.20) afloat & keep the Yen from rising to the sky. Expect further dollar rally. Break above 75.50 is the first tripwire of a rally, then a close over 76 & 76.75.

Euro, Frankenstein of currencies, rose 0.11% today to 1.4258. Downtrend remains unchallenged. Yen is knocking on all time highs.

Yesterday I recounted to y'all that thegold 20 franc coins, favorite of gold-hungry French investors, were carrying huge premiums in Europe ($28 - $35 versus $5 at wholesale here). Last night on the way home I heard a report on National Proletarian Radio that French authorities were warning those casting doubt on the solvency of French banks that they'd better not. French bank stock indices were hit hard this week. Clearly the French, who in my 64-year old memory have undergone at least one currency reform & loads of inflation, are running on the banks & swapping euros for gold. To what degree, I haven't a clue, but a few days ago something else occurred that brought to mind the French proverb, "Nothing is confirmed until officially denied." A couple of rating agencies made showy announcements that French government debt was STILL rated AAA. Right, but who asked you? Unless there's a problem, this resembles an astronomer announcing that the sky is still blue.

Y'all need to face the likelihood that gold made at least an interim top this week. We will know by the progressive depth of the reaction how far it will carry. If gold doesn't break $1,720 (low today at $1,723.95) then it will piddle sideways a few days & take off again, rushing over 1800

On 10 August gold make a new all time high close at $1,781.30. In the aftermarket that day it traded above $1,810. If it breaks $1,720 it might fall to $1,675. A close above $1,781.30 contradicts all that & tells you gold is making yet another leg up.

Today gold ranged from $1,766.46 to $1,723.95 & closed Comex $8.60 lower at $1,740.20. Gold added nearly $100 this week.

The NATURE of gold's situation has changed. In its first wave up from 2001 - 2008, it moved glacially, adding only a tiny bit at a time, struggling to attract investors. It peaked in March 2008, then gave up 30% by November. Then it began the next leg up, and this one moves with much greater speed, violence, & volatility.

The NATURE of the economic situation has changed, calling into question all the old economic verities like "US debt is the lowest risk investment." Sovereign debt around the world is being scrutinized, & investors don't like what they see. The old Keynesian paradigm -- government managing the economy & borrowing & spending its way into prosperity -- is crumbling like the Berlin Wall & that other brand of socialism. Oh, it hasn't fallen off the throne yet, but it's being pushed. The Tea Party, the endemic & insuppressible financial & fiscal crises, the rotten banking structure, debt downgrades, bailouts, all of these are the fevers, chills, & icy sweats of a dying system. Its death is hastening, hastening. Pray that liberty succeeds it, and not a worse tyranny.

In any event, all these forces are pushing gold higher and higher, and in the next three to 10 years you will see prices at levels you would never have dared dream of, let alone mention, in 2001. Shuck out of stocks & dollar denominated investments (CDs, savings accounts, annuities, bonds) and put the proceeds into silver & gold. There's still time.

Yet take not MY word for this argument. Go to www.stockcharts.com (highly recommended & worth a subscription, altho they also have loads of free services) and make a sharp chart of Gold in euros, "$gold:$xeu", for, oh, a year. Look at the July break out with a breakaway gap at E1,090 & run to E1,276 yesterday.

Turn not yet away, gentle readers. Throw up Gold in Yen, "$gold:$xjy," and mark and inwardly digest the breakout 1 August above Y127,500, & follow the climb to Y139,580 yesterday.

My point? Gold is climbing against every fiat currency. Gold is becoming the premier alternative money. Slowly, slowly the public is repudiating those central bank currencies in favor of gold. This, too will speed up.

As panic put jet fuel in gold's tanks, it pushed silver down, all the way back to 3700c on Tuesday. Yet silver did not break & fall to its 200 dma (now 3404) but fought back and today gained 44.5c to 3910.1c. I must still accept lower prices as the most likely outcome, UNLESS silver closes above 4100c, then 4200c quickly.

Countering that view is silver's uptrend -- yes, Uptrend -- since the June 27 low at 3338c. Of course, after a week of parabolic upward gold action, I'd be foolish not to brace myself for a correction. But mercy! of all the gold and silver bulls in the world, I have been kicking against the goads. Silver & gold have consistently outperformed my expectations this year. Market's left me a little punchy, but determined to buy more & more silver & gold on every little dip.

The gold/silver ratio is one fact causing me to look for lower silver. The previous post-May correction high had been 44.584 on 28 June. On 9 August it hit 45.938, which whispers that the ratio will move higher still. Way things are going, that might not be due to silver falling, but to gold blasting away topside, powered by more panic.

I watch. I wait. I am glad that so many of y'all swapped out of silver into gold, because now that move looks very slick. Let's hope it pans out with a higher ratio.

BOTTOM LINE: Long term bull market in silver & gold needs me to defend it like two lionesses need my help with a wildebeest. We may be in for a greater or lesser correction, but the primary trend remains up in a bull market.

Unknown to most, on 12 August 1687 Hungarians routed the Ottoman invaders & saved Europe at the Battle of Mohacs (pron. Mo-hatch). It was a costly battle, killing the flower of Hungarian nobility.

On 12 August 1867 President Andrew Johnson (a Tennessean) defied the Radical Republican in congress & suspended Secretary of War Edwin Stanton. In their rage they impeached him, but failed to convict. He may have been a scoundrel & a turncoat, but he was OUR scoundrel.

On 12 August 1992 the North American Free Trade Agreement (NAFTA) which was actually "government managed trade to profit corporations" was concluded between the United States, Canada, & Mexico. About 30 nanoseconds later jobs started leaving the US, and they haven't stopped since. But, boy! Those corporate profits are doing just fine. Tain't free trade by any means.

Y'all enjoy your weekend.

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
12-Aug-11 Price Change % Change
Gold, $/oz 1,740.20 -8.60 -0.5
Silver, $/oz 39.10 0.45 1.2
Gold/Silver Ratio 44.510 -0.225 -0.5
Silver/Gold Ratio 0.0225 0.0003 1.2
Platinum 1,796.00 8.40 0.5
Palladium 743.55 2.10 0.3
S&P 500 1,178.81 6.17 0.5
Dow 11,269.02 125.71 1.1
Dow in GOLD $s 133.86 2.16 1.6
Dow in GOLD oz 6.48 0.10 1.6
Dow in SILVER oz 288.20 -0.07 -0.0
US Dollar Index 74.58 0.10 0.1
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: 1,745.40      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,797.76 1,813.76 1,813.76
1/2 AE 0.50 895.39 916.34 1,832.67
1/4 AE 0.25 450.53 462.53 1,850.12
1/10 AE 0.10 186.76 193.74 1,937.39
Aust. 100 corona 0.98 1,698.87 1,712.87 1,747.46
British sovereign 0.24 408.81 413.81 1,757.91
French 20 franc 0.19 324.24 329.24 1,763.45
Krugerrand 1.00 1,767.22 1,783.22 1,783.22
Maple Leaf 1.00 1,760.40 1,778.40 1,778.40
1/2 Maple Leaf 0.50 914.15 925.06 1,850.12
1/4 Maple Leaf 0.25 458.17 462.53 1,850.12
1/10 Maple Leaf 0.10 178.03 200.72 2,007.21
Mexican 50 peso 1.21 2,087.42 2,104.42 1,745.39
.9999 bar 1.00 1,751.51 1,762.51 1,762.51
SPOT SILVER: 39.13      
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 27,298.70 27,648.70 38.67
US 40% silver 1/2s 0.30 11,071.35 11,296.35 38.29
100 oz .999 bar 100.00 3,888.00 3,933.00 39.33
10 oz .999 bar 10.00 391.30 398.80 39.88
1 oz .999 round 1.00 39.23 40.03 40.03
Am Eagle, 200 oz Min 1.00 40.88 41.78 41.78
SPOT PLATINUM: 1,796.00      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Am Eagle 1.00 1,796.00 1,896.00 1,896.00
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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.

Other Important Information

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