The Moneychanger
Daily Commentary
Thursday, 20 October a.d. 2011 Browse the commentary archive

The October 2011 Moneychanger newsletter has been published. Paid subscribers can pick it up by logging in at www.the-moneychanger.com.

Chart for the Dow today looked like a video of somebody kicking an old tin funnel down a road -- up, down, everywhere. Confusion reigns. Dow added a massive 37.16 (.32%) to close at 11,541.78 while the S&P500 added 5.51 (0.46%) to end at 1,215.39. Other indices fell, revealing their confusion & bewilderment.

Some guru on the internet said stocks rose on optimism the Euro summit this weekend would arrive at a solution for the bank solvency crisis there. Right, but how'd he know that? How'd he know for sure it wasn't stray dogs or indigestion?

From a technical perspective, stocks are still stymied by 11,650 resistance, optimism, stray dogs, or indigestion.,

DOLLAR INDEX rose slightly today, I reckon because the folks trading that market had no optimism about this weekend. (What kind of sorry people get optimism from a politicians' meeting, anyway?) Dollar index rose a tiny 7.8 basis points (0.18%) to 77.192.

The euro remains trapped below the bottom boundary of its trading channel, the one it fell out of in September. Nothing's going to happen until the politicians do something, and the chance of them doing something more than cosmetic is the same as the chance an undertaker has of raising a corpse from the dead after he pretties it up. Closed 137.77c, up 0.15%. Japanese yen remains paralyzed, up 0.2% to 130.23c/Y100 (Y76.79/$1).

The dollar's little piddling rise & other phantasms do not account for gold's fall today, down 34.10 (2.1%) to $1,611.90. Nor does it account for gold's aftermarket rise to $1,622.40. Saw the same thing in the silver market and moreso, which makes me think dealers are shorting throughout the day, then covering at day's end.

Better explanation, or a technical one, at least, is that gold has broken down out of that pennant formation and will trade lower. Today it make a low at $1,603.91, nearly touching the 150 day moving average at $1,602.50. Sturdy confidence that ain't.

Now throughout this bull market that 150 DMA has backstopped -- generally -- gold. But against that optimism look at the MACD indicator, which is turning down, nosing after lower prices.

If gold breaks $1,600, it will certainly think about dropping back to the $1,535 last low, or the 200 DMA at $1,547. And if the Eurocrats come up with some plausible face-paint, gold would take a hit on Monday. On the other hand, if they only meet, eat, dither, and retreat, gold will gain.

Seems to me politics absorbs way too much of our time. Adults ought to spend their time more profitably than wondering what a bunch of bootlicking banklackies will do.

Silver's in the same position as gold, only more volatile. On Comex today silver lost 98.6c (3.15%) to close at 3026c. In the aftermarket it quickly gained 37c (1.22%) to 3063c. Mercy! How do you parse or trade that? Silver reached 2994 today after losing its grip on 3050c support, but then jumped back pretty quickly. NEVERTHELESS, that doesn't look like it has cleared 3050c resistance (support becomes resistance when you approach it from underneath), just silver trading up in a thin aftermarket.

Breaking 3000c will send silver down a buck anyway, arguing for much lower prices.

Listen, y'all, look at the world around you & take a deep breath. Spit out that central bank ether & think: have any of the fundamental drivers of inflation and the silver & gold bull market changed? No, so the bull market continues, we are just suffering through a correction. Keep calm, silver & gold will come roaring back.

Life has a way of taking matters out of your hands. Shorthanded in the office today, Susan gone to New Albany to pick up the newsletters, and I had to go to a funeral. Can't put a funeral off.

I'm taking this opportunity to say Bye-Bye to y'all, just in case Harold Egbert Camping proves right & the world does end tomorrow. Now, I'm not really counting on that being the last day, since Camping also prophesied that the world would end on 21 May 1988, 6 September 1994, and 21 May 2011, without noticeable success. Since 21 May he has been spiritualizing away the failure, and he had a stroke.

Frankly, I'm counting on being right here tomorrow, about this time, doing what I always do, and wondering, as always, why some people do the silly things they do.

On 20 October 1714 Georg Ludwig of Hannover in Germany was crowned King George I of England. He didn't speak much English. That's the kind of king we need. Every time he asks a question or tries to interfere, you just speak real fast so he can't understand you and do what you want anyway.

MILESTONES OF AMERICAN CULTURE: Two big ones today. On 20 October 1955 Harry Belafonte recorded "Day-O." At first, it went nowhere, but then they changed the name to "The Banana Boat Song" & it became a hit. Very, very deep lyrics: "Day-o. Day-o. Daaaaaaaay-o." On 20 October 1962 Bobby "Boris" Picket and the Crypt Kickers reached the top of the charts with "The Monster Mash." Only in America.

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
20-Oct-11 Price Change % Change
Gold, $/oz 1,611.90 -34.10 -2.1
Silver, $/oz 30.26 -0.99 -3.2
Gold/Silver Ratio 53.270 0.590 1.1
Silver/Gold Ratio 0.0188 -0.0002 -1.1
Platinum 1,499.00 -12.50 -0.8
Palladium 589.00 -13.70 -2.3
S&P 500 1,215.39 5.51 0.5
Dow 11,541.78 37.16 0.3
Dow in GOLD $s 148.02 3.55 2.5
Dow in GOLD oz 7.16 0.17 2.5
Dow in SILVER oz 381.42 13.23 3.6
US Dollar Index 77.19 0.07 0.1
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SPOT GOLD: 1,622.40      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,660.40 1,682.40 1,682.40
1/2 AE 0.50 832.29 851.76 1,703.52
1/4 AE 0.25 418.78 429.94 1,719.74
1/10 AE 0.10 173.60 180.09 1,800.86
Aust. 100 corona 0.98 1,579.14 1,594.14 1,626.35
British sovereign 0.24 381.91 388.91 1,652.14
French 20 franc 0.19 302.90 309.90 1,659.89
Krugerrand 1.00 1,632.40 1,655.40 1,655.40
Maple Leaf 1.00 1,634.40 1,655.40 1,655.40
1/2 Maple Leaf 0.50 849.73 859.87 1,719.74
1/4 Maple Leaf 0.25 425.88 429.94 1,719.74
1/10 Maple Leaf 0.10 165.48 186.58 1,865.76
Mexican 50 peso 1.21 1,942.27 1,959.27 1,625.01
.9999 bar 1.00 1,628.08 1,639.08 1,639.08
SPOT SILVER: 30.63      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 25,500.00 28,000.00 36.60
VG+ Peace dollar 0.77 25,000.00 27,000.00 35.29
90% silver coin bags 0.72 21,542.95 22,257.95 31.13
US 40% silver 1/2s 0.30 8,445.85 8,745.85 29.65
100 oz .999 bar 100.00 3,088.00 3,148.00 31.48
10 oz .999 bar 10.00 306.30 312.30 31.23
1 oz .999 round 1.00 30.73 31.48 31.48
Am Eagle, 200 oz Min 1.00 32.38 33.38 33.38
SPOT PLATINUM: 1,499.00      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Am Eagle 1.00 1,499.00 1,599.00 1,599.00
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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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