The Moneychanger
Daily Commentary
Tuesday, 6 December a.d. 2011 Browse the commentary archive

Just as people used to ask me in the years running up to the real estate peak in 2006, "Do you really mean that I should sell my house?" so today they ask me, "Do you REALLY mean that I should cash in my IRA?" Answer in both cases is, "Yes. Yes."

My fear is that if you don't, the federal government will one day decree that your IRA can only invest in US government bonds. Where will you be then? Anyway, one owneth not what one controlleth not, and thou controllest not thine IRA, the government doth. If that's not true, then why do you have to pay a penalty and tax to take possession of it? In my little natural born fool's mind, anything I don't control doesn't really belong to me yet.

Quaint, I know, but realistic. Hidebound Tennessee.

For all the hu-hu yesterday about the Great Fix in Europe, the euro did well to keep its lips above water today. Ended at 1.3409, up a bit, 0.7% -- enough to see, I reckon, if you have a microscope handy. Yen rose also to 128.73c per Y100 (Y77.68/$1).

US DOLLAR INDEX stubbornly refuses to to bow to Euro-exuberance by sinking below 78.50. Today trading at 78.619, up 4.9 basis points, a tiny 0.06%.

Since Friday the trend has been up, with higher lows and higher highs. Must-hold line is the uptrend line at 78.45. Long as the scrofulous dollar holds that line, it points up.

Dow Jones Industrial Average today rose an uncertain 52.3 points (0.43%) to 12,150.13. S&P500 rose 1.39 (0.11%, even more uncertain), to 1,258.47.

Okay, ask me why I think 12,200 puts the cap on any stock market rally? Glad you asked! Because going back to November 2010 you can draw a line from the 11/10 top across the bottoms in 2011 & you will see a massive, undeniable head and shoulders top.

That H&S is confirmed by a gigantical drop in August once it closed through the neckline, from 11,900 to 10,604. All the moiling since then has done no more than take the Dow back up to that neckline for a Final Kiss Good- Bye before it falls to perdition.

O, the weeping & wailing & woe! It draws ever nearer.

I have to sort of break the rules today for gold. I say "sort of" because nowadays the gold market runs 24 hours, so closes aren't quite as dispositive as once they were.

Here's what I mean: Yesterday gold closed at $1,730.70 on Comex, and today at $1,727.90, ostensibly "down" $2.80.

But when you looked at what happened in the market AFTER Comex closed, instead of merely posting two down days, gold actually traced out something like a key reversal to the upside.

Here's where I'm stretching the rules. A key reversal occurs when a market trades into new low territory, then closes higher at day's end. Second half confirms when it closes HIGHER the next day.

Yesterday after Comex closed the Globex market traded down to $1,717. Then overnight gold kept on dropping, and posted a low at $1,702.47 (neatly defending, by the way, the $1,700/$1,705 support). That low came while New York was open, about 10:00, and the rest of the day gold climbed like a Sherpa. By my math, $1,727.90 is higher than $1,702.47, and after gold had come under that attack, & been driven down so far, to come back nearly to unchanged -- viewing the whole 24 hours together -- looks like a market turning up. It also left behind an upside-down head-and- shoulders-ey chart, with a $1,720 neckline.

Gold stopped today at $1,730 -- actually, is trading a bit above that now at $1,730.45. Tomorrow gold must not trade below $1,725 & must climb & close above $1,730 or 'twill explode my rule-stretching theory.

Add to my upside suspicions silver's behavior today. It rose 36.6c to close Comex at 3267.2c. Mmmm -- silver rose 1.1% while gold dropped minutely. I have to call that a BULLISH divergence.

Silver's chart last two days looks like a reversal, too, provided tomorrow it clears 3300c, or at worst doesn't close below 3250c.

For the nonce & until gainsaid, I interpret the last few days' moves in silver & gold to be "reactions back to support", that support being the rising boundary of an even-sided triangle. Closes below those lows mentioned above would cancel that interpretation.

Be advised that coming shortly is some break out of those even-sided triangles, up or down. For now, though, these prices near the trendlines offer good places to buy. Should they drop more, I will buy more.

On 6 December 1885 President Jefferson Davis died in New Orleans.

Born just across the Tennessee line in Kentucky in 1808, he graduated from West Point in 1828, & later fought in the Black Hawk War (1832). There he served under Col. Zachary Taylor (later US president) and married his daughter, Sarah Knox Taylor. Married in 1835, bride & groom both contracted malaria, and Sarah died three months after they were wed.

After 8 years as a recluse, Davis was elected to the US House in 1845, shortly after marrying Varina Howell. He resigned from the house in 1846 to lead a volunteer regiment in the Mexican- American War. Because of his heroic war service, the Mississippi governor appointed him US Senator for an unexpired term. In the senate he chaired the Committee on Military Affairs, and in 1853 President Pierce made him Secretary of War. Ironically, he updated the very US Army which would later face the Confederacy with the latest technology.

Not a secessionist himself, he left the Senate when Mississippi seceded, and was elected president of the new Confederacy in February, 1861. Critics abound who in hindsight can show what terrible mistakes Davis made. R. E. Lee didn't think so, and it is doubtful that anyone could have done a better job leading the South.

At the War's end Davis was captured near Washington, Georgia. When he was transferred to a military transport at the coast, the little black boy, Jim Limber, whom his wife had rescued from a beating on Richmond's streets and whom the Davises had adopted, was torn from Mrs. Davis' arms and never seen again.

Jefferson Davis was imprisoned for two years under monstrously cruel conditions at Fortress Monroe. Pope Pius IX sent him a crown of thorns. The whole time he was threatened with prosecution for his part in the war, but eventually the US government realized they could never get away with a trial because secession was not illegal. He was released on a $100,000 bond, posted by in part by prominent Northerners such as Horace Greeley, Cornelius Vanderbilt, & Gerrit Smith.

No point in my praising Jefferson Davis' astonishing nobility, courage, & purity of heart. Y'all will say I am biased. However if you want to learn for yourself what Davis was like, read Mrs. Felicity Allen's Jefferson Davis, Unconquered Heart. She spent 20 years researching & preparing her book, and it's the best Davis biography available.

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
5-Dec-11 Price Change % Change
Gold, $/oz 1,727.90 -2.80 -0.2
Silver, $/oz 32.67 0.37 1.1
Gold/Silver Ratio 52.886 -0.686 -1.3
Silver/Gold Ratio 0.0189 0.0002 1.3
Platinum 1,519.70 -1.00 -0.1
Palladium 668.25 36.40 5.8
S&P 500 1,258.47 1.39 0.1
Dow 12,150.13 52.30 0.4
Dow in GOLD $s 145.36 0.87 0.6
Dow in GOLD oz 7.03 0.04 0.6
Dow in SILVER oz 371.88 -2.59 -0.7
US Dollar Index 78.62 0.05 0.1
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: 1,730.45      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,773.71 1,789.71 1,789.71
1/2 AE 0.50 873.88 908.49 1,816.97
1/4 AE 0.25 441.26 458.57 1,834.28
1/10 AE 0.10 183.43 192.08 1,920.80
Aust. 100 corona 0.98 1,684.31 1,699.31 1,733.64
British sovereign 0.24 407.35 414.35 1,760.19
French 20 franc 0.19 323.08 330.08 1,767.94
Krugerrand 1.00 1,740.83 1,756.83 1,756.83
Maple Leaf 1.00 1,742.45 1,763.45 1,763.45
1/2 Maple Leaf 0.50 856.57 899.83 1,799.67
1/4 Maple Leaf 0.25 428.29 458.57 1,834.28
1/10 Maple Leaf 0.10 171.31 186.89 1,868.89
Mexican 50 peso 1.21 2,071.63 2,088.63 1,732.29
.9999 bar 1.00 1,736.51 1,747.51 1,747.51
SPOT SILVER: 32.72      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 26,305.65 27,805.65 36.35
VG+ Peace dollar 0.77 25,805.65 28,800.00 37.65
90% silver coin bags 0.72 22,679.80 23,029.80 32.21
US 40% silver 1/2s 0.30 9,062.40 9,362.40 31.74
100 oz .999 bar 100.00 3,297.00 3,357.00 33.57
10 oz .999 bar 10.00 327.20 333.20 33.32
1 oz .999 round 1.00 32.82 33.57 33.57
Am Eagle, 200 oz Min 1.00 34.47 34.97 34.97
SPOT PLATINUM: 1,519.70      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Am Eagle 1.00 1,519.70 1,619.70 1,619.70
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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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