The Moneychanger
Daily Commentary
Thursday, 3 November a.d. 2011 Browse the commentary archive

My plans changed because a dear friend of mine, Jim Hollingsworth, went to dance with the angels & I have to attend his funeral tomorrow. I have a day here at home, so am sending y'all this commentary. I should return Wednesday, 9 November. Besides, I want to share with y'all some observations on the last few days' events.

What would y'all think about a man who got into all sorts of trouble because he got drunk & couldn't control himself, and then woke up one morning & said to himself, "Hey, I know how to straighten everything out! I'll go down to the liquor store & buy a couple of bottles of whiskey."

That's Europe with its sovereign debt (read: "bank solvency") crisis, and the whole world with its financial system.

Just about the time the eurocrats thought they had enough cards to win the game, Greece's Papandreou pulled out the biggest trump in the deck, a plebiscite to approve the whole deal. They deal fell apart, but after sufficient arm-twisting, the deal MIGHT be put together again, if Papandreou backs off the plebiscite.

To this, add the bankruptcy of MF Global, led by former Goldman Sachs VP, former New Jersey governor, John Corzine. Corzine turned up his nose at the paltry profits made by the brokerage business, & opted instead for the proprietary trading model of Goldman Sachs. Whoops, although he is a Master of the Universe, as are all Goldman Sachsites, he could not see that the Universe has changed since 2006. He got rid of those stodgy old businesses & bought up all the PIIGS' debt he could, to wit, $6 billion. Along the way the firm went bankrupt, & it seems that zero, $600 billion, or $1.2 billion of the customer's money was mislaid, depending on who's counting. We know something rank was cooking, because the CME closed off all trading for MF Global accounts, except liquidations. When Refco failed a few years ago, whatever company bought out their book just transferred the accounts to their own books & life went on without a hiccup. Not so this time.

MF Global's crash raises other question: What other landmines are out there waiting for bankruptcy?

So think. Now, not just the market's course is in doubt, but the integrity of the market itself, the rule of law & that minimal stability that promises that when you buy an investment your broker won't steal your money, and when you get ready to sell the investment, your broker -- or SOME broker & SOME market -- will still be alive & trading.

All of which shines a spotlight on the value of government market regulation: it's not necessary when there's not a problem, and its no good when there is one. When people's word no longer counts for anything, when honesty dies and all hearts lean to lawyering & larceny, financial markets cannot survive. The rule of law and markets are disappearing before predators like Corzine and Goldman Sachs. But y'all don't worry, the US government -- and governments around the world -- will backstop the financial system, and the banks. Shucks, that'll do it! Look what a good job they've already done with, er, uh, mmmm, I'll come back to that.

Folks, I hope y'all have a hoe, some flowerbeds, a bunch of seeds, & some gumption. Y'all are liable to need 'em.

Stocks gained 208.43 today (1.76%) after losing 2.5% two days ago. Dow closed at 12,044.47. S&P 500 rose 1.88% (23.25) to 1,261.15. This puts the Dow above its 200 day moving average (11,974) once again, but this still paints a losing picture. Dow may reach 12,400 again, but these are death throes. Stay away, it might be catching.

Saw some goof ("financial adviser") say in America's Comic Book Newspaper, USA Today, that the only solution for this wild market is a "diversified portfolio." Now there's a recipe for success, like guaranteeing a winner in Russian roulette by loading up all six cylinders. If anything at all might conceivably pull a profit out of today's stock market, it is utterly judicious stock-picking but it SURE ain't diversification.

The US DOLLAR INDEX tried to rally out over the top of its May - September trading channel again, but fell back today. Dropped 28 basis points today (0.36%) to 76.736. However, that's a LOOOONG ways from the 74.72 bottom a few days ago, & Dollar now stands above its 50 dma (76.71). Will move higher.

All this "It's fixed -- No it ain't" coming out of Europe is making the currency markets hotter than a rogue nuclear reactor, and almost as easy to trade. Euro definitively broke last week, gapped down twice, & has traded back barely above the 20 DMA (1.3810), closing today at 1.3816, up 0.51%. Clearly the eurocrats will shoot their mother in front of a cop to keep the euro afloat. This has become a criminal enterprise. What? Did I say that? Central banking, indeed, fractional reserve banking, has ALWAYS been a criminal enterprise.

Japanese Nice Government Men broke the yen last week, and so far it has stayed broken. Closed today 128.07c/Y100 (Y78.08/$1).

Y'all get mad if you have to, but the market is slowly changing my mind on silver & gold. Short term -- on the 5-day chart) gold has made another upside-down head & shoulders, with a neckline about $1,725 & the bottom of the head at $1,680, Tuesday's low. If so (and you'll know it is NOT so if gold closes below $1,740), it will rise about $50 from the breakout at $1,740, or up to $1,790, call it $1,800.

Little sister Silver has likewise sketched an upside-down head and shoulders, with a neckline at 3460c and head/bottom at 3214c. Head depth points to a target of 3700c. Should silver fall below 3350c - 3325c, twould gainsay that outlook.

Market begins to persuade me that the bottoms in silver & gold have already occurred. Not dogmatic about that yet, but am humbly trying to let the market talk instead of my own natural born fool mouth.

GOLD today traded from $1,723.37 to $1,767.27, and closed up $35.50 near the top of the range at $1,764.20.

SILVER ranged from 3322c to 3482c. It closed on Comex up 55.9c at 3448.8c.

The shadow of a divergence falls across the market as silver might very well be arguing with gold about direction. Gold broke out of that putative upside down head & shoulders today, while silver did not. Also the ratio rose today to 51.154, up 0.4%. Not much, but worth noticing.

The European crisis is destabilizing all markets, & no statesman appears with the only solution, a debt jubilee & taming the banks. That gang of ditherers will do the world more harm than a blood soaked dictator.

On 1 November 2011the Santa Monica, California City Attorney's Office filed a criminal indictment against officers of GoldLine, including grand theft by false pretenses, false advertising, and conspiracy. GoldLine, y'all may remember, was a heavy TV & internet advertising gold retailer endorsed by Glenn Beck, Fred Thompson, & former Arkansas government Mike Huckabee. The indictment charges the firm used bait and switch tactics to steer bullion purchasers into much more expensive numismatic coins.

An indictment is not proof of a crime, & every person under Anglo-American jurisprudence is entitled to the presumption of innocence. However, draw your own conclusions about the value of celebrity endorsements. Also, one might wonder whether these celebrities were paid anything for their endorsements.

On 3 November 1839 broke out the first Opium War between China and Britain. The Chinese didn't want opium coming into their country & corrupting their people, while the British had to do something about their balance of trade between Britain, India, & China, and paying for Chinese exports with imports of opium seemed the best way to them. Accordingly, they waged a war to force the Chinese emperor to let the opium into the country.

New England traders from Massachusetts & Rhode Island who found that the closing of the African slave trade in 1809 left them without a lucrative occupation, had shifted to the Opium trade with China. Some of the descendants of these opium fortunes remain around & wealthy. Some have even gone into US politics, & their name rhymes with Shush, I've heard. But what do I know?

On 3 November 1927 Turkey adopted the Roman alphabet to replace the Arabic, thus closing off its entire history -- written in the Arabic script -- to coming generations who would not be able to read it.

On 3 November 1982 the Dow Jones Industrial Average rose 43.41 points, the greatest single day gain in New York Stock Exchange history. Today, a move of 43 points would qualify as a dead day.

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
3-Nov-11 Price Change % Change
Gold, $/oz 1,764.20 35.50 2.1
Silver, $/oz 34.49 0.56 1.6
Gold/Silver Ratio 51.154 0.204 0.4
Silver/Gold Ratio 0.0195 -0.0001 -0.4
Platinum 1,639.00 37.80 2.4
Palladium 656.60 8.55 1.3
S&P 500 1,261.15 23.25 1.9
Dow 12,044.47 208.43 1.8
Dow in GOLD $s 141.13 -0.39 -0.3
Dow in GOLD oz 6.83 -0.02 -0.3
Dow in SILVER oz 349.24 0.39 0.1
US Dollar Index 76.74 -0.28 -0.4
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: 1,763.00      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,801.79 1,817.79 1,817.79
1/2 AE 0.50 904.42 925.58 1,851.15
1/4 AE 0.25 455.07 467.20 1,868.78
1/10 AE 0.10 188.64 195.69 1,956.93
Aust. 100 corona 0.98 1,716.00 1,731.00 1,765.96
British sovereign 0.24 415.01 422.01 1,792.74
French 20 franc 0.19 329.15 336.15 1,800.49
Krugerrand 1.00 1,777.10 1,793.10 1,793.10
Maple Leaf 1.00 1,775.00 1,796.00 1,796.00
1/2 Maple Leaf 0.50 923.37 934.39 1,868.78
1/4 Maple Leaf 0.25 462.79 467.20 1,868.78
1/10 Maple Leaf 0.10 179.83 202.75 2,027.45
Mexican 50 peso 1.21 2,110.59 2,127.59 1,764.61
.9999 bar 1.00 1,769.17 1,780.17 1,780.17
SPOT SILVER: 34.59      
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 23,981.10 24,431.10 34.17
US 40% silver 1/2s 0.30 9,614.05 9,914.05 33.61
100 oz .999 bar 100.00 3,484.00 3,544.00 35.44
10 oz .999 bar 10.00 345.90 351.90 35.19
1 oz .999 round 1.00 34.69 35.44 35.44
Am Eagle, 200 oz Min 1.00 36.34 37.34 37.34
SPOT PLATINUM: 1,639.00      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Am Eagle 1.00 1,639.00 1,739.00 1,739.00
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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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