The Moneychanger
Daily Commentary
Tuesday, 25 October a.d. 2011 Browse the commentary archive

Yesterday I omitted the other point I wanted to make from Michael Lewis' little book, Boomerang. He interviewed Texas hedge fund manager Kyle Bass several years ago. Bass had called the mortgage collapse in the US & made boatloads with Credit Default Swaps -- think, "bets against mortgage backed securities."

But Bass looked at how the 2008 US crisis was handled, & began to realize that a new phase was unfolding: governments were back-stopping the banks. And it has happened in Europe. Of course, it's impossible for them to do that, because the banks' bad assets -- in sovereign debts, derivatives, MBS, you name it -- are so bottomlessly vast no country could pay them. Yet, that's what they're trying to do. This guarantees a massive financial crisis, perhaps a collapse.

When Lewis asked Bass what he would tell his mother to buy under these circumstances, Bass shot back, "Guns & gold." Lewis gave the equivalent of a nervous giggle over that, intensely uncomfortable with that politically incorrect answer. Yet it was coming from a man who had a 100% track record.

Frankly, I get tired sometimes -- tired of pointing out the obvious. I reckon "stating the obvious" is my only talent, and in the land of the blind the one- eyed man is king. Lately I've been remembering that I have no right to get tired, the world just is what it is, and people delude themselves as they will, afraid to look the truth in the eyes. The ones who have ears will hear, & the rest will never hear anything. The music from Washington & Wall Street will keep drowning everything else out, until the music stops.

The deal in Europe is falling apart, & now the Eurocrats have no plan to present at the planned meeting on Wednesday. Bankers don't want to take a 60% haircut on Greek debt, Germans don't want to bail them out. Greed & pride have driven the banks crazy, since they are being offered 40c on the dollar for debt that is realistically worth zero. But I reckon that's why they call them "banks."

Bottom line for us: whether they banks take 40% or 60%, WHERE WILL THE MONEY COME FROM? The ECB will print it, and never mind the transmission mechanism. And more inflation will beget more inflation, & silver & gold will thrive. May take a few more months to materialize into a renewed rally, but 'twill happen -- y'all take the word of a one-eyed, natural born fool from Tennessee on that.

Fears out of Europe today sent stocks down, the dollar and yen up, and goosed gold & silver strongly.

The Dow lost 207 points (1.74%), 2/3 of the previous two days' gains, to close at 11,706.62. S&P500 lost 25.14 or 2% to close at 1,229.05.

Dow's five day chart peaked a bit above 11,900 yesterday, rolled over, and fell out of bed. If 11,700 cannot hold, then 'twill hit 11,400 quicker'n a frog can tongue a fly out of the air.

The Dow has now reached its 200 DMA (11,967), a frequent barrier to bear market rallies. The pattern formed since August, when the Dow fell from the Jaws Of Death, has been ANOTHER broadening or megaphone pattern. Megaphones are burning up buying power, a market wrestling and writhing before it gives up.

Stocks -- a GUARANTEE for your retirement, but y'all had better ask exactly WHAT they guarantee.

US DOLLAR INDEX rose 9.4 basis points (0.12%) to 76.122. You can bet your last sovereign that the NGM from the US & all over the world, along with the Central Bank Yellow Running Dogs, are working like threshing machines trying to keep that dollar from running away. Euro closed 139.02, down 0.19%. Yen made a new all time intraday high at 132.04c/(Y75.73= $1), closed 131.47, and is trying to take off.

I reckon that WAS an upside down head & shoulders on the gold chart. Once gold cleared that $1,660 neckline about 10:00 a.m. (taking off with a runaway gap) it never even paused until $1,685, took a deep breath, then leapt clean to $1,705. Friends, by the time the janitor pulled out the broom on Comex, gold had added $48.10 (2.9%) & stood at $1,699.60. In the aftermarket it's shoving against $1,705 resistance.

Y'all see how those government surprise parties can mess with markets? Gold was building a rally anyway, but that goose from the dithering Eurocrats really put power behind it.

Measured target for this rise is $1,715, but as long as that European party is raging, gold can keep on rising. $1,725 stands next resistance, then $1,750, then the big heart-stopper at $1,800.

I still expect we will see another decline for a final kiss goodbye to the September lows (not that the price will reach that far necessarily, only that a double bottom will appear), but for right now y'all don't stand in gold's way, unless y'all want everybody to think you've left the room when you turn sideways.

One last thing: y'all watch that 50DMA, now at $1,742.82. Gold might stop there. Also keep an eye on $1,775, where gold collapsed in September. Gold might reach that point, too.

Silver was pleased to slap the jaws of all its detractors today. The Comex janitor found silver up 141.4 cents or 4.5% (if I'm lying, I'm dying) to 3303.4c.

Somebody who had BADLY missed the message was selling silver about 7:00 a.m. and sold down all the way down to 3139c at 10:00 a.m. Quicker than a lightning flash, silver gapped up over 3160c & shot straight to 3230c. It jogged there a little, then shot another 100c straight up to 3320c. In the aftermarket its trading 3317.5c.

Silver is targetting 3400c. Really would not be a good sign for silver to fall much below 3300c, if it expects to keep rising. 3350c is the next big barrier.

This was a great move today, but only brings silver back to resistance at the top of its 5 week trading range. Must move higher tomorrow to confirm its upward ambitions.

Today you are witnessing why you must gird up your loins, swallow hard, and buy silver & gold on sharp declines -- because the sharp rises will follow. It's a bull market. It has an indefatigable upward bias.

On St. Crispin's day, 25 October 1415, English King Henry V won the Battle of Agincourt in France during the 100 Years War. Henry's Welsh & English longbowmen wore out the more heavily armed French troops. With 6,000 to 9,000 men, 5/6 of them bowmen, the English beat 36,000 French troops, inflicting 7,000 - 10,000 casualties and suffering only 112 dead.

On 25 October 1983 2,000 US marines invaded Grenada in response to a political coup by Soviet/Cubans, threatening the vital US supply of Grenadine. Had not that supply line been cleared of communist influence, bars across America would have been forced to stop serving pink lemonade, Shirley Temples, Tequila Sunrises, Cherry Bombs, and Christmas Beer.

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
25-Oct-11 Price Change % Change
Gold, $/oz 1,651.50 16.40 1.0
Silver, $/oz 31.62 0.45 1.4
Gold/Silver Ratio 52.230 -0.223 -0.4
Silver/Gold Ratio 0.0191 0.0001 0.4
Platinum 1,566.00 22.80 1.5
Palladium 641.55 1.55 0.2
S&P 500 1,229.05 -25.14 -2.0
Dow 11,706.62 -207.00 -1.7
Dow in GOLD $s 146.53 -4.07 -2.7
Dow in GOLD oz 7.09 -0.20 -2.7
Dow in SILVER oz 370.23 -11.95 -3.1
US Dollar Index 76.04 -0.47 -0.6
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SPOT GOLD: 1,705.90      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,750.25 1,766.25 1,766.25
1/2 AE 0.50 875.13 895.60 1,791.20
1/4 AE 0.25 440.34 452.06 1,808.25
1/10 AE 0.10 182.53 189.35 1,893.55
Aust. 100 corona 0.98 1,660.42 1,675.42 1,709.26
British sovereign 0.24 401.57 408.57 1,735.64
French 20 franc 0.19 318.49 325.49 1,743.39
Krugerrand 1.00 1,721.25 1,737.25 1,737.25
Maple Leaf 1.00 1,717.90 1,738.90 1,738.90
1/2 Maple Leaf 0.50 893.47 904.13 1,808.25
1/4 Maple Leaf 0.25 447.80 452.06 1,808.25
1/10 Maple Leaf 0.10 174.00 196.18 1,961.79
Mexican 50 peso 1.21 2,042.24 2,059.24 1,707.92
.9999 bar 1.00 1,711.87 1,722.87 1,722.87
SPOT SILVER: 33.18      
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 23,434.13 23,884.13 33.40
US 40% silver 1/2s 0.30 9,196.63 9,496.63 32.19
100 oz .999 bar 100.00 3,342.50 3,402.50 34.03
10 oz .999 bar 10.00 331.75 337.75 33.78
1 oz .999 round 1.00 33.28 34.03 34.03
Am Eagle, 200 oz Min 1.00 34.93 35.93 35.93
SPOT PLATINUM: 1,566.00      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Am Eagle 1.00 1,566.00 1,666.00 1,666.00
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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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