The Moneychanger
Daily Commentary
Monday, 17 October a.d. 2011 Browse the commentary archive

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Today's markets:

The US dollar index rose 0.78%, 60.4 basis points, to 77.22, throwing bags of monkey wrenches into the stock, silver, & gold markets.

The Euro is probably on a tear that will run nearly to 1.4200 before it collapses, but today it was bouncing off of resistance at the bottom boundary of the 5 month trading channel. Dropped today 0.99% to 137.40. This euro-intoxication springeth from the alcoholic vapors of hope -- hope that the Europeans will actually fix their banking system. Maybe, but not until after at least Greece & maybe two or three others default on their government debt. Then all those optimists will transmogrify just as instantly into euro-pessimists. Markets have no loyalty.

Japanese yen continues to slide down the upper boundary line of a triangle, within a sidewise trading range. Rose today 0.49% to 130.18c/Y100 (Y76.82/$1). No resolution, no direction, but also no confirming weakness yet.

Stocks dashed the dreams of all those who bedded down Friday with visions of Sugar Plum profits dancing in heir heads. Bounced off 11,700 resistance like a big old June bug bouncing off your windshield at 75 mph on Interstate 40, leaving behind a gooshy yellow mess. Dow closed down 247.49 2.13%) at 11,397, hand in had with a falling S&P500 that tumbled 3.35% (23.86) to 1,200.86. Oh, I reckon stocks will still rise higher, probably even rally a while, but not much beyond the 200 day moving average (11,967). Today the Dow lost nearly every penny it had gained in five day's work last week.

Stocks -- they USED to represent a real economy, but now they're only the delusion of an economy. Reminds me of that joke laborers used to tell in the Communist countries -- "They pretend to pay us so we pretend to work." Likewise, the US pretends to have an economy, so stocks pretend to have value.

I have been awaiting a gold rally up towards $1,700 at least, but gold keeps failing to close above $1,681.70 Today it eased a little higher overnight, nearly reached 1695, but fell most of the day in US trading, with a floor at $,1665. Gold has coiled up into a tightening range that looks like a rising flat topped triangle. Those usually break out upside, but they can worry you to death waiting for that resolution. A breakdown here -- say, below $1,640 -- would leave gold looking very weak. An upside breakout should carry to $1,725, maybe $1,750 or even $1,800 before it fails.

I'm working on two possible outcomes here. First, that the $1,927 top was not a major one, & from here gold will rally into year end. Second says that $1,927 was a major top, & gold will spend 4 - 6 months in jail doing penance before it lifts off again. A close above $1,805 sets the first outcome in motion. Comex gold closed down $6.30 at $1,675.50.

SILVER hasn't acted nearly as enthusiastically as gold lately. Today it reached only 3265c, right near that 3250c mark that has stopped it so often. Low came at 3147. If tomorrow's trading breaks that 3150c line, silver's liable to trade back to 3000c.

Overhead silver needs to rise above 3350c to break out. 200 DMA stands at 3616c. Although I EXPECT gold to rise and carry silver with it in a corrective bounce against the recent fall, silver wouldn't surprise me much if it fell back to 3000c.

On Comex silver was settled down 34c at 3179.1c.

On 17 October 1781 British General Cornwallis sent forward a white flag with an office who negotiated surrender terms for the besieged British army at Yorktown, Virginia. On land they were surrounded by American & French troops, while a French fleet blockaded their escape by sea.

The surrender was negotiated, but Washington denied the British request for honors of war because the British had denied the same to the Americans when they had surrendered Charleston. The British & Hessian troops marched out 19 October with muskets reversed in shame while the British fifers and drummers played "The World Turn'd Upside Down." Surrendered were 8,000 troops, 214 artillery pieces, thousands of muskets, 24 transport ships,wagons & beaucoup wagons and horses.

Yorktown was the last major battle of the war, although the Treaty of Paris was not signed until 3 September 1783. Yorktown marked an amazing reversal of fortune for the American Revolution. Barely a year before South Carolina was being tortured by the English on their way up the colonies. The colonies seemed lost, but on 7 October 1780 at Kings Mountain, North Carolina, the Scotch-Irish Over-The-Mountain Men (mostly from Tennessee, I note with satisfaction) had answered the challenge of British Col. Ferguson by killing him and destroying his Loyalists in an uphill battle. On 17 January 1781 American General Daniel Morgan suckered and destroyed Lt. Col. Banastre Tarleton's British force, the cream of Cornwallis' army. From that point Cornwallis made one mistake after another on his path through North Carolina into Virginia and finally locked himself up at Yorktown.

Just a reminder of two things: (1) It ain't over till it's over, and (2) don't mess with the Scotch-Irish.

Do any of you woodworkers or cabinet makers or handymen out there know where I can buy REAL hardware? I need a latch, manually operated NOT electric, sort of like those old door latches that were a 3 x 4" brass box. Just need the latch mechanism. And I need a fancy wrought iron hinge, a longish one, for a 2x4 rail bar. Nor WalMart nor Home Depot carries anything like this.

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
17-Oct-11 Price Change % Change
Gold, $/oz 1,675.50 -6.30 -0.4
Silver, $/oz 31.79 -0.34 -1.1
Gold/Silver Ratio 52.700 0.362 0.7
Silver/Gold Ratio 0.0190 -0.0001 -0.7
Platinum 1,555.50 0.50 0.0
Palladium 617.30 -8.70 -1.4
S&P 500 1,200.86 -23.86 -1.9
Dow 11,397.00 -247.49 -2.1
Dow in GOLD $s 140.61 -2.50 -1.7
Dow in GOLD oz 6.80 -0.12 -1.7
Dow in SILVER oz 358.50 -3.91 -1.1
US Dollar Index 77.22 0.60 0.8
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SPOT GOLD: 1,671.50      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,709.50 1,731.50 1,731.50
1/2 AE 0.50 857.48 877.54 1,755.08
1/4 AE 0.25 431.46 442.95 1,771.79
1/10 AE 0.10 178.85 185.54 1,855.37
Aust. 100 corona 0.98 1,626.94 1,641.94 1,675.10
British sovereign 0.24 393.47 400.47 1,701.24
French 20 franc 0.19 312.07 319.07 1,708.99
Krugerrand 1.00 1,681.50 1,704.50 1,704.50
Maple Leaf 1.00 1,686.50 1,704.50 1,704.50
1/2 Maple Leaf 0.50 875.45 885.90 1,771.79
1/4 Maple Leaf 0.25 438.77 442.95 1,771.79
1/10 Maple Leaf 0.10 170.49 192.22 1,922.23
Mexican 50 peso 1.21 2,001.05 2,018.05 1,673.76
.9999 bar 1.00 1,677.35 1,688.35 1,688.35
SPOT SILVER: 31.80      
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 22,483.18 23,033.18 32.21
US 40% silver 1/2s 0.30 8,789.53 9,089.53 30.81
100 oz .999 bar 100.00 3,204.50 3,254.50 32.55
10 oz .999 bar 10.00 317.95 323.95 32.40
1 oz .999 round 1.00 31.90 32.80 32.80
Am Eagle, 200 oz Min 1.00 33.55 34.45 34.45
SPOT PLATINUM: 1,555.50      
Plat. Am Eagle 1.00 1,555.50 1,655.50 1,655.50
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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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