The Moneychanger
Weekly Commentary
Tuesday, 23 August a.d. 2011 Browse the commentary archive
Here's the weekly scorecard:
  19-Aug 26-Aug Change % Change
Silver, cents/oz. 4,242.80 4,095.20 -147.60 -3.5
Gold, dollars/oz. 1,848.90 1,794.10 -54.80 -3.0
Gold/silver ratio 43.577 43.810 0.230 0.5
Silver/gold ratio 0.0229 0.0228 -0.0001 -0.5
Dow in Gold Dollars (DIG$) 120.95 130.02 9.07 7.5
Dow in gold ounces 5.85 6.29 0.44 7.5
Dow in Silver ounces 254.96 275.56 20.59 8.1
Dow Industrials 10,817.65 11,284.54 466.89 4.3
S&P500 1,123.53 1,176.80 53.27 4.7
US dollar index 73.99 73.71 -0.28 -0.4
Platinum 1,876.00 1,832.70 -43.30 -2.3
Palladium 750.00 762.00 12.00 1.6

Remember that Our Bosses in government, central bank, and Wall Street have only two weapons in their arsenal of panic control: inflation and blarney. Inflation adds liquidity to ease the panic, blarney calms the affrighted herd. I don't care how many "tools" they claim to have, they all boil down to inflation and blarney.

As far back as 1895 or 1907, the arch-banker John Pierpont Morgan was shooting his Blarney Cannon: "The man who is a bear on the future of the United States will always go broke." Ahhh, who could doubt one of our Big Bosses?

We know from yesterday's events that Our Bosses are terrified, because they loaded the mouth of their biggest Blarney Cannon & fired it: Warren Buffett. Banks US & European are puking sick dogs, and Bank of America sickest amongst 'em. How, O, How will we gull the public into buying bank stocks? We'll get Warren Buffett to announce he's buying $5 billion of preferred stock in BoA. Now Warren ain't operating a charity, so the great humanitarian will not lose a dime on this deal. The preferred stock pays a 6% dividend & has the primary claim on BoA's assets, even before bondholders. Blarn! Blarn! Hear the Blarney Cannon!

Didn't work. Dow sank 170.81, after the early morning Buffet Blarney Barrage.

Then today Our Bosses fired another gun in their Blarney Battery: the Bernanke Blarney Blaster. Bernancubus gave a speech which everyone hoped would explain how he would save the world. Alas, the Bernanke Blarney Blaster mis-fired. Not even enough powder to blow the ball out of the tube.

Beside confirming his utterly incurable cluelessness, the Bernancubus blustered like some cheap, shabby magician that he has Tools You Know Not Of. Mmmmm, 'bout time to dig them tools out, Ben, & put 'em to work! Result of this was something only rarely seen every millennium, back to back Key Reversals in the gold market, which says to me -- and I am nothing but a natural born fool from Tennessee & have never even drawn nigh to them high-falutin' Harvards & Yales where Our Bosses are educated & made Perfect to Decide Our Pissant Destinies -- that not a single shot of the blarney cannons hit anything, & investors remain terrorized by the banks' condition. Proof? The crowds flee still gold- & silverward.

Boom! Boom! Say the Blarney Cannon. Bust! Bust! Says the people.

Uh - oh. What's that other sound I hear? Is that snickering at the back of the room?? Surely you disrespectful scoundrels are not LAUGHING at Our Bosses?

STOCKS burned up immense amounts of buying power ammunition this week for a small gain. But the Nice Government Men did pull stocks back from disappearing into the abyss. Only succeeded though in lifting the Dow to 11,300 resistance. Dow today closed up 134.72 or 1.21%, while the S&P50 close up 17.53 (1.51%) at 1,176.80. Dow finally touched it 20 DMA (11,290) but missed closing above it.

Upside the Dow must now close above 11,530 to prove an uptrend. 200 DMA, likely target of countertrend rally, stands at 11,987, as far as the sky above the earth. A close below 10,600, still to come I trow, sends the Dow spinning out of control on its next leg earthward.

Buy stocks, because it will be a vote of confidence in the ability of the Federal Reserve and US government to direct the economy. That'll show all those gold-and-silver-buying croakers AND it will earn you a bed at the I-40 Under-The-Culvert Retirement Home.

The Nice Government Men managed to keep the US DOLLAR INDEX in its 75.5 - 73.5 range again this week. Today, likely on the strength of the Bernanke Blarney Blanster's speech, the dollar index fell 56.9 basis points to 73.71. As long as the dollar index stays above 72.70, my opinon remains that the dollar is meditating a rally.

The euro on "mysterious" strength rallied today to 1.4498, up 0.82% & bumping on the top of its 1.4530 range. If it broke out above that it would signal a rally, and it would signal that the world is even more lunatic than I already surmise.

The Japanese yet closed today at 130.45c/Y100 (Y76.66/$). It remains at the top of its range, with a new all time high 5 days ago, & momentum continues upward.

I have never before seen a market make TWO (2) Key reversals in four days, but that is what gold did. Now you ought to understand that normally, a key reversal will change a markets direction for a little while.

Key Reversals occur in two parts. A downward Key Reversal happens when (1) a market trades into new high territory intraday but closes lower that day than the day before, then (2) the market closes lower still next day. An upward Key Reversal happens when (1) a market trades into new LOW territory intraday but closes HIGHER that day, and then (2) closes higher still next day.

Monday & Tuesday made a downward Key Reversal. Wednesday & Thursday gold made an Upward Key Reversal. To ice that donut, gold today rose $34.30 to close comex at $1,794.10, then rose another $30 in the aftermarket!

Looking at the way gold bounced off $1,712 on Thursday, then closed ABOVE $1,750 support/resistance, the only safe path is to buy gold. Next week may prove me wrong, but this week's action shouts that gold's rally has not near-about ended.

SILVER's low for the week came at 3905c, which I count as establishing 3900c as strong resistance now. Silver made a sort of double-bottom there on Wedensday and Thursday. Thursday it gained an astounding 158.3c.

Our confusion will be cleared up when silver closes above the last high at 4428c, or drops below 3875c. Right now, you have to say that silver is trending upward in a series of higher lows and higher highs. Wednesday's plunge did NOT break the uptrend line.

The slow-burn panic continues driving investors into silver & gold. Silver continues to gain status alongside gold. Unless silver & gold weaken off terribly on Monday (below $1,700 and 3900c), I am buying.

Both silver & gold will rally further. Big correction has not struck yet. It lieth ahead somewhere.

On 26 August 1873 was born in Council Bluffs, Iowa Lee DeForest. A born inventor, he held hundreds of patents from the photoelectric cell to the surgical radio knife. More importantly, he invented the triode, a three element vacuum tube which later became the audion tube and made raido possible.

Not much to anybody's surprise, a man inventing radio tubes in a world without radio was not hailed as a genius but decried as a fraud. He was arrested for selling stock to underwrite the development of his invention, which everybody knew wouldn't work. He was forced to sell the rights to AT&T for $500,000. Mmmmm.

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
26-Aug-11 Price Change % Change
Gold, $/oz 1,794.10 34.30 1.9
Silver, $/oz 40.95 0.21 0.5
Gold/Silver Ratio 43.810 0.835 1.9
Silver/Gold Ratio 0.0228 0.0001 0.5
Platinum 1,832.70 -14.30 -0.8
Palladium 762.00 5.00 0.7
S&P 500 1,176.80 17.53 1.5
Dow 11,284.54 134.72 1.2
Dow in GOLD $s 130.02 -0.94 -0.7
Dow in GOLD oz 6.29 -0.05 -0.7
Dow in SILVER oz 275.56 1.91 0.7
US Dollar Index 73.71 -0.57 -0.8
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: 1,825.30      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,863.63 1,879.63 1,879.63
1/2 AE 0.50 936.38 958.28 1,916.57
1/4 AE 0.25 471.16 483.70 1,934.82
1/10 AE 0.10 195.31 202.61 2,026.08
Aust. 100 corona 0.98 1,776.63 1,790.63 1,826.81
British sovereign 0.24 427.53 432.53 1,837.41
French 20 franc 0.19 339.08 344.08 1,842.95
Krugerrand 1.00 1,845.38 1,861.38 1,861.38
Maple Leaf 1.00 1,840.30 1,858.30 1,858.30
1/2 Maple Leaf 0.50 956.00 967.41 1,934.82
1/4 Maple Leaf 0.25 479.14 483.70 1,934.82
1/10 Maple Leaf 0.10 186.18 209.91 2,099.10
Mexican 50 peso 1.21 2,182.98 2,199.98 1,824.65
.9999 bar 1.00 1,831.69 1,842.69 1,842.69
SPOT SILVER: 41.34      
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 28,771.60 29,121.60 40.73
US 40% silver 1/2s 0.30 11,723.30 11,948.30 40.50
100 oz .999 bar 100.00 4,109.00 4,154.00 41.54
10 oz .999 bar 10.00 413.40 420.90 42.09
1 oz .999 round 1.00 41.44 42.24 42.24
Am Eagle, 200 oz Min 1.00 43.09 43.99 43.99
SPOT PLATINUM: 1,832.70      
Plat. Am Eagle 1.00 1,832.70 1,932.70 1,932.70
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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.
  • 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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