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Daily Commentary
Thursday, 2 August a.d. 2012 Browse the commentary archive

With decisive indecisiveness ECB head Mario Draghi (a Goldman Sachs alumnus) packed full the Blarney Cannon, then forgot to light a match. He said something equal to, "You all better watch out, or I might have to start doing something."

It's not nice to disappoint markets, & stocks responded by dropping all over the world. One begins to wonder whether the entire euro-debacle is being managed to bring the Southern countries to a point of such desperation that they will accept whatever fiscal controls Berlin wants to impose.

But Occam's razor says that we ought always to prefer, as the most likely explanation, the most obvious explanation. Therefore we conclude that nothing more is motivating Draghi & the ECB than simple feckless incompetence born of the unworkable central banking system.

Yield on 10 year US treasuries fell again (bonds rose), but still look toppy. Whether that top in bonds & faith in the Elmer Gantry of currencies, the US Dollar, comes next week or in six months, the fall of that house will be great.

Have mercy on the world! Now that the drunk Mario bought for markets last week has worn off, what happens next?

The US dollar index rose 27 basis points (0.35%) to 83.321 today. Meanwhile the Euro, which had reached its 50 DMA ($1.2414) before Mario closed the bar, sank all the way through its 20 DMA ($1.2237) & filled the gap it left behind a few days ago. Closed $1.2183, down 0.36%. Promises to drop below $1.2000. Yen is acting like a kid that hangs back hoping nobody will notice him. Rose today 0.28% to 127.85c (Y78.2), but is flat lining on the chart, carefully controlled & held below 128.18c.

Today gold closed Comex $16.30 lighter than yesterday, at $1,587.40. Silver gave back 53.6 cents & ended at 2698.1c.

Gold & silver seem determined to test the lower boundaries I mentioned yesterday, $1,580 & 2680 cents. Gold today touched $1,584.90, but never climbed higher than $1,615. Since $1,585.83 marks a 61.8% correction of the 12 to 30 July move ($1,564.9 to $1,619.70), gold needs to hold that line. If not, it whispers lower prices will come. My opinion -- but only my natural born fool opinion -- is that it will hold, but tomorrow will tell me.

Silver's low today at 2697c comes mighty close to retracing the entire advance from 2679c to 2801.4c. That's not unusual for schizophrenic silver, but both metals have reached that cliff-edge where they must reverse course or tip over. Gold closed below its 20 DMA ($1,590.81), which doesn't promise great things. Silver has reached the bottom of that flat-topped triangle we have been watching. Not holding there would be in very bad taste.

Thanks to central bankers, not only does economic hardship abound, but short term bewilderment & confusion as well. Be patient, silver & gold may struggle here but will have sorted it out by the month's end & should be rising by then.

On 2 August 1858 the rule of the East India Company was transferred to the British government. Hard for us to believe that for nearly 200 years a corporation had been running a large part of the country. Imagine that, a corporation running a country! Why, it would be like the Federal Reserve running our monetary system, or the Too-Big-To-Fail Banks ordering government to bail them out, or defense corporations calling the shots in Washington! Unthinkable!

By the way, it was the East India company that emptied all the silver out of England. Under the corrupt regime of Charles II the company hired his mistress to influence legislation allowing silver to be exported from the realm. Once it passed they had every reason to ship silver to India, because the ratio in England was 15.5 oz of silver to one ounce of gold, while in the Far East it was 12 - 10 oz. Thus all the silver they drained out of England bought far more in India than gold would have, & they could convert their profits into cheap gold & ship it back to England. That's one reason why in 1718 when Newton reformed the English monetary system he put it on a de facto gold system. He had no choice: very little silver remained in England.

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
2-Aug-12 Price Change % Change
Gold, $/oz 1,587.40 -16.30 -1.02%
Silver, $/oz 26.98 -0.54 -1.95%
Gold/Silver Ratio 58.834 0.554 0.95%
Silver/Gold Ratio 0.0170 -0.0002 -0.94%
Platinum 1,386.30 -13.50 -0.96%
Palladium 567.05 -14.75 -2.54%
S&P 500 1,365.00 -10.32 -0.75%
Dow 12,878.88 -92.18 -0.71%
Dow in GOLD $s 167.71 0.53 0.32%
Dow in GOLD oz 8.11 0.03 0.32%
Dow in SILVER oz 477.33 5.95 1.26%
US Dollar Index 83.32 0.27 0.33%
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: 1,586.00      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,625.65 1,640.65 1,640.65
1/2 AE 0.50 800.93 832.65 1,665.30
1/4 AE 0.25 404.43 420.29 1,681.16
1/10 AE 0.10 168.12 174.46 1,744.60
Aust. 100 corona 0.98 1,539.05 1,553.05 1,584.42
British sovereign 0.24 373.34 380.34 1,615.74
French 20 franc 0.19 296.11 303.11 1,623.49
Krugerrand 1.00 1,597.10 1,612.10 1,612.10
Maple Leaf 1.00 1,596.00 1,616.00 1,616.00
1/2 Maple Leaf 0.50 785.07 824.72 1,649.44
1/4 Maple Leaf 0.25 392.54 420.29 1,681.16
1/10 Maple Leaf 0.10 157.01 171.29 1,712.88
Mexican 50 peso 1.21 1,892.96 1,908.96 1,583.28
.9999 bar 1.00 1,591.55 1,602.55 1,602.55
SPOT SILVER: 27.00      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 22,877.93 26,000.00 33.99
VG+ Peace dollar 0.77 21,877.93 25,000.00 32.68
90% silver coin bags 0.72 19,372.93 19,622.93 27.44
US 40% silver 1/2s 0.30 7,491.53 7,666.53 25.99
100 oz .999 bar 100.00 2,699.50 2,749.50 27.50
10 oz .999 bar 10.00 274.95 277.45 27.75
1 oz .999 round 1.00 26.85 27.70 27.70
Am Eagle, 200 oz Min 1.00 28.60 29.30 29.30
SPOT PLATINUM: 1,386.30      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Platypus 1.00 1,411.30 1,451.30 1,451.30
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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.

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  • 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.
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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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