The Moneychanger
Daily Commentary
Wednesday, 12 October a.d. 2011 Browse the commentary archive

Ours is an Age of Illusion in which we elect actors as presidents & governors and pretend they can rule. Appearance is all, reality nothing.

But appearance can kill you. Doesn't matter whether a fire really is blazing in the crowded theater, if a little smoke sends the crowd stampeding out, they can still run over you & kill you.

So markets today run on illusion. The illusion's effect is further amplified many-fold by the huge degree of leverage available in every market. In gold futures, for instance, you put up about 6.25 cents to control a dollar's worth of gold -- your 6.25 cents controls 16 times its value, the illusion of wealth.

I seek to pinpoint why Our Age so frustrates rational & realistic people, namely, illusion overpowers reality & reason everywhere.

Thus a rational & realistic bank examiner would slap his briefcase together, put his fountain pen in his pocket, stand up, brush the bank's dust off his feet, and leave to report that the European and American banks are a hopeless case, dead on arrival. But the banks own the illusionists we call "government officials," & those worthies are constantly creating the illusion that somehow or other, the banks & the financial system will all muddle thru, if we hoi polloi will only suck up our guts, tighten our belts, & pay for the bailouts.

Which brings me to Europe & its basket case. EC President Jose Barroso, who resembles a very worried toad, called for reinforcing (a.k.a, bailing out) the banks, paying out the 6th loan to Greece (altho Greece admits it can't meet the criteria), and a fast start for the permanent rescue fund (sovereign debt bail out fund or "bucket"). Meanwhile, Slovakian legislators, urged no doubt by muffled phone calls explaining how likely they were to jump out of windows spontaneously if they didn't change their votes, agreed to vote again on supporting the euro bailout fund, and get it right this time, after they failed to approve it yesterday.

Now y'all bear in mind that none of this offers a genuine, effective solution to the crisis. It's all feckless illusion.

On the basis of these Illusionists' performance, the Stock Market Illusion jumped today, along with the euro. Stocks did not overnight somehow secure a more profitable outlook, the euro was not backed by gold or goats or fava beans. Nothing changed but the illusion, but Ahhh! That was enough.

Have y'all ever seen that movie, Lars & the Real Girl? This fellow orders a life-sized blow-up doll then walks her around town introducing her as his new girlfriend. Everybody, even his family, plays along. Folks in his church throw a birthday party for her. Even have a funeral for her near the movie's end. Happens right there in Minnesota. They ought to make a sequel, Ben & the Real Economy.

STOCKS rose 102.55 or 0.9% to 11,518.85. S&P500 rose 11.71 or 0.98% to 1,207.25.

The Dow has now climbed thru its 20 day moving average (11,135) and 50 dma (11,204) and crossed above the bottom jaw of the Jaws of Death topping formation. 200 DMA, a possible target, stands at 11,968, which roughly coincides with support/resistance about 11,860.

If the Dow can pierce that 11,860 & the S&P500 the 1,250 level, stocks could rally to 12,750. I doubt that, but if stocks don't crumble at that resistance, it's possible.

More likely is that the mad-dog leveraged traders are driving the move by the latest wave of illusion/optimism out of Europe, & their manic-depressive mood will swing again on the next bad news.

All this holds true, too, for the Franken-currency, the euro. Off the 1.3164 bottom it has risen to close at 1.3787 today, up on the day 1.03%, and at the bottom of the trading range (May-September) it broke down from. In making this leap it has left two gaps behind so it looks like a strong runaway move, but I've learned to distrust the euro's gaps some what. It left them on the way down too, and thru the summer. They run a little way, then fizz out. BICBW, and if the euro crashes thru the resistance at the bottom of the channel, call it 1.3950, it might rise to 1.4000. Go ahead, Illusion-eaters! Y'all buy a bunch of 'em. Y'all might get rich doing it, or you might just pick your own pocket. Me, I wouldn't buy euros with stolen money, recalling that this rally only marks a 50% retracement of the fall.

The yen dropped today 0.76% to 129.46c/Y100 (Y77.26=$1), a big fall that sank it beneath the 20 dma (130.41) but still rides atop the downtrend line from August. Breaking, but not broke.

US dollar index today lost 59 basis points & is now trading at 76.995. This remains within the range of a normal correction, & stubborn fool that I am, I still expect a costlier dollar.

GOLD & SILVER confounded me today once again. I was interpreting yesterday as gold's third failure to pierce $1,675, but today it closed Comex at $1,681.30, up $21.60. I ain't nothing but a natural born fool no way, so I got no reputation to protect. Still, that little hook up to $1,681 just looks like a sidlin' move from Monday & Tuesday, & not a determined rise. Tomorrow gold will prove me clean wrong if it trades up to $1,700. A break thru $1,655 will drag gold down like concrete overshoes on a New York gangster.

Even if gold breaks upside tomorrow and reaches $1,700 or $1,725, I will still be suspecting it's no more than a rally in a correction. A close over $1,775 would slap my jaws & prove me wrong.

Silver stole 79 another cents on Comex to close at 3275.4c, breaking that pesky 3250c resistance. The 20 dma stands slightly higher, at 3357c, & crossing above that would turn silver up, if only temporarily. Silver could trade clean up to 3950c & still not prove it's going higher. But the MACD indicator says silver will move higher for a while, so it probably will climb for a few days.

Big question that silver & gold will answer here is, Have they made their lows for the correction? This rally will tells, either by shooting moon-ward or climbing and falling back.

On 12 October 1892 the pledge of allegiance was first recited in public schools. Now I know that to question the pledge puts me outside the pale of decent Americanity & casts suspicion me as a terrorist, but I cannot but remember that the pledge was originally said not with hand over heart, but with armed raised in a Fascist salute. That hand was dropped when the rise of the Nazis made it too embarrassing. I might wonder, too, why little kiddies are forced day by day to take a loyalty oath to an indivisible unitary state with a federalist constitution. I might even ask questions about the writer, Francis Bellamy, a defrocked Baptist minister and socialist (that "under God" part wasn't added until 1954). And I can't help wondering how I'd feel if my wife made me recite a pledge every single morning, "I pledge allegiance to my wife, and promise that I love her." I'd have the feeling she didn't really trust me. Besides, I told her I love her when we got married. If I change my mind, I'll let her know.

Now all of y'all who are moved to send me hate-mail because of my remarks about the pledge, please use one of my special hate mail addresses, either "barak@whitehouse.com"or "ben@federalreserve.net."

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-Oct-11 Price Change % Change
Gold, $/oz 1,681.30 21.60 1.3
Silver, $/oz 32.75 0.79 2.5
Gold/Silver Ratio 51.330 -0.593 -1.1
Silver/Gold Ratio 0.0195 0.0002 1.2
Platinum 1,555.00 28.00 1.8
Palladium 612.00 6.00 1.0
S&P 500 1,207.25 11.71 1.0
Dow 11,518.85 102.55 0.9
Dow in GOLD $s 141.63 -0.55 -0.4
Dow in GOLD oz 6.85 -0.03 -0.4
Dow in SILVER oz 351.68 -5.48 -1.5
US Dollar Index 77.00 -0.59 -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: 1,677.35      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,715.35 1,737.35 1,737.35
1/2 AE 0.50 860.48 880.61 1,761.22
1/4 AE 0.25 432.97 444.50 1,777.99
1/10 AE 0.10 179.48 186.19 1,861.86
Aust. 100 corona 0.98 1,632.63 1,647.63 1,680.91
British sovereign 0.24 394.85 401.85 1,707.09
French 20 franc 0.19 313.16 320.16 1,714.84
Krugerrand 1.00 1,682.35 1,707.35 1,707.35
Maple Leaf 1.00 1,692.35 1,710.35 1,710.35
1/2 Maple Leaf 0.50 878.51 889.00 1,777.99
1/4 Maple Leaf 0.25 440.30 444.50 1,777.99
1/10 Maple Leaf 0.10 171.09 192.90 1,928.95
Mexican 50 peso 1.21 2,008.06 2,025.06 1,679.57
.9999 bar 1.00 1,683.22 1,694.22 1,694.22
SPOT SILVER: 32.61      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 33,000.00 34,500.00 45.10
VG+ Peace dollar 0.77 31,500.00 33,000.00 43.14
90% silver coin bags 0.72 22,744.15 23,673.65 33.11
US 40% silver 1/2s 0.30 9,029.95 9,329.95 31.63
100 oz .999 bar 100.00 3,286.00 3,336.00 33.36
10 oz .999 bar 10.00 326.10 332.10 33.21
1 oz .999 round 1.00 32.71 33.61 33.61
Am Eagle, 200 oz Min 1.00 34.36 35.26 35.26
SPOT PLATINUM: 1,555.00      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Am Eagle 1.00 1,555.00 1,655.00 1,655.00
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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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