The Moneychanger
Daily Commentary
Monday, 1 October a.d. 2012 Browse the commentary archive

I am growing increasingly uneasy about expecting a large correction in silver & gold. I'll explain later.

Central banks in Australia, England, & Europe will announce interest rate decisions this week. If they lower rates that ought to fuel gold's rise further. More, rumors say Spain will ask the EU for a bailout this week. Remember the Moneychanger's Political Economy Formula, BS = MI2, or, Bailout Spain = More Inflation Squared.

Clearly the market anticipates more bad news for the dollar. After flattening its face on the ceiling at 80 Friday, the US dollar index lost another 24.1 basis points (0.31%) today to 79.812. That dollar index is as spry as a grasshopper after you drop a cinderblock on him.

Boundaries for the dollar are a close above 80.10 to turn up, or a close below 79.40 to turn down.

This remains the Best of All Possible Worlds as hand in hand central bankers take the global economy over the cliff, skipping along in step while they eviscerate their currencies. Never mind, above all, the Banks Must Be Fed.

Euro closed at $1.2889 while the Yen closed 128.20c. (US$=Y78.00 = E 0.7758). Neither changes the technical picture at all, except the euro, scrofulous construct that it is, is bouncing along under its downtrend line.

Stocks continue to tag along after gold & silver after the dollar. Sort of like one of those stupid things that you did when you learned that you could not pull a trailer with your pick-up truck when all they have is a chain. Need a trailer hitch, cause the trailer hath no brakes.

Yet stock buyers will get a huge surprise when that dollar really keels over sick & gold races away. Today the Dow gained 77.98 (0.5%) to 13,515.11. S&P500 also gained 3.82 (0.27%) to 1,444.49. The Dow has trampolined off its 20 DMA (13,423) while the S&P500 hit the bottom boundary of its rising wedge. Both, I suspect, will rise further, defrauding more unwary of their hard earned savings.

I couldn't find any particular news item as a catalyst, but something hit gold this morning about 8:30, shooting it from just below $1,770 to $1,790.70 quicker than a cat can cross a road. Well, a 30-minute road-crossing cat, anyway.

Yet gold couldn't hold on to those gains, & after a small double peak fell back to make a $1,770 - $1,780 range. After a new intraday high ($1,790.70) gold closed $9.40 richer, bless its heart.

So gold hit a higher high for the move today, after it had hit a lower low than Friday ($1,764.63). This is not weak action, but the outcome will be influenced by all this silly banking/bailout announcements this week. Gold could be stopped cold by $1,805, or pass on through. I certainly would not want to be short gold right here.

Silver gained 36.4c today to 3388.1c. Today's 3535c high surpassed the last intraday high (3526c).

Silver's breakaway today came from 3440c, about that mysterious 8:30 a.m. witching hour. Shot straight up to 3535c, them came about as straight down, but to a higher range, 3450 - 3490. Many pessimists lurk above 3500c, awaiting every chance to sell silver up there. Gold/silver ratio dropped a little today, from 51.429 Friday to 51.045, so silver is moving up faster than gold, but one question nags: why can't it get through 3500c to close at a new high like gold? That's not a fatal question, just one of those out of place items that sends a little shiver over your brain trying to put it in its proper place.

If those pessimists ever leave the gate open for silver, it'll sprint for 3750 in great leaps & bounds, as only silver can.

So I'm sitting here sweating, because all it will take to kill my expectation of a correction is a gold close above $1,800 or silver above 3550c. Tomorrow ought to remove all my doubt.

On 1 October 331 B.C. at the Battle of Gaugamela (also called Arbela) Alexander the great with an army of 47,000 Greeks defeated the Persian emperor Darius III with twice that number. Darius fled & was later murdered by a traitor. It was the end of the Persian Empire, and the beginning of Greek rule.

On 1 October 1746 the last Stuart pretender to the Scottish & English thrones, Bonnie Prince Charlie, fled to France, abandoning his followers who had risked everything for him. He was, after all, a Stuart.

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
1-Oct-12 Price Change % Change
Gold, $/oz 1,780.50 9.40 0.53%
Silver, $/oz 34.88 0.36 1.05%
Gold/Silver Ratio 51.045 -0.266 -0.52%
Silver/Gold Ratio 0.0196 0.0001 0.52%
Platinum 1,681.50 16.20 0.97%
Palladium 644.45 4.80 0.75%
S&P 500 1,444.49 3.82 0.27%
Dow 13,515.11 77.98 0.58%
Dow in GOLD $s 156.91 0.09 0.06%
Dow in GOLD oz 7.59 0.00 0.06%
Dow in SILVER oz 387.46 -1.83 -0.47%
US Dollar Index 79.81 -0.24 -0.30%
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SPOT GOLD: 1,777.00      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,823.20 1,838.20 1,838.20
1/2 AE 0.50 905.76 932.93 1,865.85
1/4 AE 0.25 457.32 470.91 1,883.62
1/10 AE 0.10 188.26 192.80 1,928.05
Aust. 100 corona 0.98 1,733.11 1,743.82 1,779.04
British sovereign 0.24 418.31 422.31 1,793.99
French 20 franc 0.19 331.77 335.77 1,798.42
Krugerrand 1.00 1,792.99 1,807.99 1,807.99
Maple Leaf 1.00 1,787.00 1,807.00 1,807.00
1/2 Maple Leaf 0.50 879.62 924.04 1,848.08
1/4 Maple Leaf 0.25 439.81 470.91 1,883.62
1/10 Maple Leaf 0.10 175.92 191.92 1,919.16
Mexican 50 peso 1.21 2,125.21 2,142.21 1,776.74
.9999 bar 1.00 1,783.22 1,794.22 1,794.22
SPOT SILVER: 34.87      
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 24,789.05 25,039.05 35.02
US 40% silver 1/2s 0.30 9,814.65 9,989.65 33.86
100 oz .999 bar 100.00 3,487.00 3,537.00 35.37
10 oz .999 bar 10.00 353.70 356.20 35.62
1 oz .999 round 1.00 34.72 35.57 35.57
Am Eagle, 200 oz Min 1.00 36.47 37.12 37.12
SPOT PLATINUM: 1,681.50      
Plat. Platypus 1.00 1,706.50 1,746.50 1,746.50
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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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