The Moneychanger
Daily Commentary
Monday, 17 September a.d. 2012 Browse the commentary archive

It dawned on me today:  the Fed is fixing up the banks' balance sheets by

1.  Buying their Mortgage Backed securities,

so the banks can take that newly created money &

2.  Buy US treasuries, &

3.  Instantly clean the banks' balance sheet,

trading a rotten asset for a solvent one.

But who pays?  You do.  Fed created money to buy MBSs, & must inflate hugely to do so, 12 x $40 bn = $480 bn = 1/2 trillion a year. Every dollar the Fed creates cheapens the dollars you own -- sucker.

Bottom line:  this amounts to creating $40 bn/month to buy, that is, to DIRECTLY MONETIZE, US government debt.  At heart this is precisely what the Reichsbank did for the Weimar government during the 1920-1923 German hyperinflation.

Ben Bernanke, I would say, finds himself just a little bit pregnant.

TODAY'S MORALITY PUZZLER: Does a moral government grant anyone the power to create money out of thin air? Is it immoral to default on a debt owed to such criminals?

Think about it this way: a man puts a gun in your ribs & takes your wallet, then asks, "Do you have any more money on you?" Are you morally obliged to tell him about the $100 in your shoe?

I keep telling y'all that the central banks probably have an exchange rate range for the yen, euro, & dollar that equals roughly Y80 = E0.80 = US$1 on the high side and Y75 = E0.75 = US$1 on the low side. That means that each currency in dollar terms will range between $1.2500 & $1.3333.

Clearly Bogus Ben & Super Mario have made a deal to inflate their currencies together to mask the real game, gutting their currencies.

Dollar index bottomed Friday at 78.60. Today it stands at 79.186, up 23.5 basis points today or 0.3%. It will probably rally up to 80 or so before it slows down.

Euro has shot its wad for the nonce. Shows two gaps, a runaway gap mid-August & an exhaustion gap Friday. Backed off 0.52% today to 1.3047. Time for a rest.

Yen has fallen back badly from Friday's high, down another 0.11% today to 126.90c (Y78.80/US$1). Expect no great things here.

Stocks were mostly falling today, although the Potemkin Dow did manage to add 11.54 (0.09%) to 13,564.64. Most other indices fell, including the S&P500, down 1.87 (0.13%) to 1,459.32.

Platinum & Palladium are weighing on gold & silver. Beginning mid-August platinum staged a magnificent run from the high $1300s to $1,716.50. Ahh, but what's won easily is lost easily, too. Platinum has lost $77 (4.5%) since Friday, leaving little doubt that this move has ended. Palladium rose from $562.35 to $705.80 on Friday, and today stands at $666.85. It's chart looks finished, too, and these two dropping want to drag silver & gold down as well.

Silver gained 34.6 cents today to end at 3464.4c. Gold gained 70 cents to $1,768.40.

Silver's 5 day chart has diverged from gold's. While gold has formed what is probably a rounding top, silver today managed a new high at 3503c. Gold, on the other hand, traded rangebound by $1,769 - $1,775 over Friday and Monday, dropping off money to $1,750. It rose again today as high as $1,773.13, but today's low was slightly lower. Overall impression is a rounding top.

Since I'm no more than a natural born fool from Tennessee, I could be dead wrong here, and if gold shoots through $1,825 I'll admit it. Till that happens, however, I'm expecting a correction after the long run silver & gold have enjoyed. It's okay --- they've earned it.

On 18 September 1789 the US governemnt took oiut its first loan. Alexander Hamilton (don't spit, you'll mess up the floor!) took the loan from the Bank of New York & the Bank of North America.

Funny story about that Bank of North America. It was the bank cobbled together which the insiders hoped to make the central bank for the US, like the privately owned Bank of England. Problem was, they didn't have much capital, hardly any. But they had a few bags of silver coin, so they hired two stout fellows to send them up from the basement on a dumbwaiter, and two others to roll the dolly across the lobby so everyone could see how much money they had. Then they carried the bags downstairs, where the other two would load them into the dumbwaiter again.

It was sort of like Bogus Ben going on TV to tell all the hoi polloi that everything is fine in the economy.

On 18 September 1873 government bond agent Jay Cooke & Co. collapsed, causing a panic on Wall Street. More things change, more they remain the same.

Argentum et aurum comparanda sunt —
Silver and gold must be bought.

— Franklin Sanders, The Moneychanger

Your source for gold and silver. Read our latest reviews and testimonials.
Market Snapshot See more charts and market data
18-Sep-12 Price Change % Change
Gold, $/oz 1,768.40 0.70 0.04%
Silver, $/oz 34.64 0.35 1.01%
Gold/Silver Ratio 51.045 -0.495 -0.96%
Silver/Gold Ratio 0.0196 0.0002 0.97%
Platinum 1,635.30 -36.30 -2.17%
Palladium 666.85 -21.75 -3.16%
S&P 500 1,459.32 -1.87 -0.13%
Dow 13,564.64 11.54 0.09%
Dow in GOLD $s 158.56 0.09 0.06%
Dow in GOLD oz 7.67 0.00 0.06%
Dow in SILVER oz 391.54 -3.61 -0.91%
US Dollar Index 79.19 0.24 0.30%
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: 1,767.70      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,813.66 1,828.66 1,828.66
1/2 AE 0.50 901.02 928.04 1,856.09
1/4 AE 0.25 454.93 468.44 1,873.76
1/10 AE 0.10 187.27 191.80 1,917.95
Aust. 100 corona 0.98 1,724.04 1,734.70 1,769.74
British sovereign 0.24 416.12 423.12 1,797.44
French 20 franc 0.19 330.03 337.03 1,805.19
Krugerrand 1.00 1,783.61 1,798.61 1,798.61
Maple Leaf 1.00 1,777.70 1,797.70 1,797.70
1/2 Maple Leaf 0.50 875.01 919.20 1,838.41
1/4 Maple Leaf 0.25 437.51 468.44 1,873.76
1/10 Maple Leaf 0.10 175.00 190.91 1,909.12
Mexican 50 peso 1.21 2,114.09 2,131.09 1,767.51
.9999 bar 1.00 1,773.89 1,784.89 1,784.89
SPOT SILVER: 34.58      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 26,000.00 27,750.00 36.27
VG+ Peace dollar 0.77 25,000.00 27,500.00 35.95
90% silver coin bags 0.72 24,506.63 24,756.63 34.62
US 40% silver 1/2s 0.30 9,727.63 9,902.63 33.57
100 oz .999 bar 100.00 3,457.50 3,507.50 35.08
10 oz .999 bar 10.00 350.75 353.25 35.33
1 oz .999 round 1.00 34.43 35.28 35.28
Am Eagle, 200 oz Min 1.00 36.18 36.83 36.83
SPOT PLATINUM: 1,635.30      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Platypus 1.00 1,660.30 1,700.30 1,700.30
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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.
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  • 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.
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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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