The Moneychanger
Daily Commentary
Wednesday, 3 October a.d. 2012 Browse the commentary archive

I walked outside this morning & the crisp world had been washed clean by rain & the sun was painting the trees & I thought, "I could live 100 years in a dark basement just to live on one day like this."

My wife says that's probably an exaggeration, but not much.

I've been wavering back & forth on silver & gold but have finally come to an easier mind about it. It's always dangerous to ditch your first analysis after that proves correct, and more dangerous still to anticipate future rather than accept present facts. More later.

Read something today that prompted my brain to shake off the dust. What is the one outcome that investors expect least? Right, a dollar rally, 'cause after all the world "knows" that QE3 has doomed the dollar. But wait -- if all the world knows that, then they've already put down their money & placed their bets, that's already done its work. That's priced in, & the biggest surprise would be the dollar index climbing through 80. Rally like that wouldn't have to last long to smash silver, gold, and stocks very painfully.

Today the US dollar index did NOT follow through toward the earth's core, but jumped up off yesterday's lows to 79.938, up 0.187 or 0.24%.

Since the mid-September intraday low at 78.60, the dollar index has tried but failed to break down that door at 80. Today the downtrend line stands about 80.25. A close above that would first puzzle, then astonish all those folks short the dollar. After a day or so with higher closes, they would panic & cover those short positions -- at any price. Next resistance up there stands about 81.00.

A close below 79.40 would knock this theory in the head.

Yen's & euro's behavior today makes the theory yet more plausible. Yen gapped down 0.45% through its 20 and 50 day moving averages (trading near each other) & closed below the 50 DMA at 127.38c. After sledding up its 20 DMA for six days, today the Euro closed at $1.2899, down 0.14% and below the $1.2921 20 DMA. In fact, it's floating only a little higher than its 200 DMA, now $1.2831.

Gravity is not pleased with these markets.

Likewise gravity is weighing heavily on stocks. Stocks tried mightily to rise today, but gave up about mid-day. Once again today, the Dow was weaker than the other indices, although it did not close down while the others closed up. S&P500 gained 0.36%, Dow gained 0.09%. Dow rose 12.33 to 13,494.69. S&P500 gained 5.24 to 1,450.99.

If QE3 was such a great boost to stocks, why have they stalled here? Maybe Bernanke shot the inflation cannon but it was only a popgun.

Nor is gravity absent from the silver & gold markets. Think of a live oak limb. Y'all know how the grow out impossibly long from the tree? Along comes a hurricane . . .

Silver & gold have both traced out that sort of pattern. They have broken through their uptrend lines and traded sideways. Certainly, that may prove no more than a consolidation before moving higher. However, after that long rise from mid-August, isn't it more likely a reversal pattern?

Tension is growing in both metals as their daily ranges shrink. Gold gained $4.60 today to $1,777.30, but the range was only $10, from $1,781.55 to $1,771.58. That limb just keeps growing farther from the tree, and gravity never stops insisting.

A gold close above $1,790 would prove my musings wrong, but if it closes below $1,765 y'all will hardly have time to move out of the way.

Silver added 2.7 cents today to 3463.1c, which is about as close to flat as you can come without actually being a fritter. Range narrowed from 65 cents yesterday to 38 cents today, 3486c to 3448c. That limb's growing longer & longer. MACD indicator has also turned down for silver and gold.

Finally, what can the central bank announcements on Thursday add to the gloomy outlook for the US dollar? Not much. If other central banks lower interest rates, it will only make them LESS attractive against the dollar. And if Spain asks for a bailout and gets it, will that make the euro a better currency? Not till pigs fly.

There's no hurry here. Another market train leaves the station every day. I can wait a little while on the next one, rather than climb on one going the wrong way.

On 3 October 52 B.C. the Gaulish leader Vercingetorix surrendered to the invader Julius Caesar, effectively ending Gaul's opposition to the expanding Roman Empire. The Romans imprisoned him for 5 years, then strangled him after making him walk in Caesar's triumph parade.

On 3 October 1776 Congressed borrowed $5 million to halt the rapid depreciation of the Continental currency. It didn't.

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-Oct-12 Price Change % Change
Gold, $/oz 1,777.30 4.60 0.26%
Silver, $/oz 34.63 0.03 0.08%
Gold/Silver Ratio 51.321 0.093 0.18%
Silver/Gold Ratio 0.0195 -0.0000 -0.18%
Platinum 1,690.30 7.40 0.44%
Palladium 656.25 3.70 0.57%
S&P 500 1,450.99 5.24 0.36%
Dow 13,494.69 12.33 0.09%
Dow in GOLD $s 156.96 -0.25 -0.16%
Dow in GOLD oz 7.59 -0.01 -0.16%
Dow in SILVER oz 389.67 0.05 0.01%
US Dollar Index 79.94 0.19 0.23%
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: 1,777.10      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,823.30 1,838.30 1,838.30
1/2 AE 0.50 905.81 932.98 1,865.96
1/4 AE 0.25 457.35 470.93 1,883.73
1/10 AE 0.10 188.27 192.82 1,928.15
Aust. 100 corona 0.98 1,733.20 1,743.91 1,779.14
British sovereign 0.24 418.33 422.33 1,794.09
French 20 franc 0.19 331.78 335.78 1,798.52
Krugerrand 1.00 1,793.09 1,808.09 1,808.09
Maple Leaf 1.00 1,787.10 1,807.10 1,807.10
1/2 Maple Leaf 0.50 879.66 924.09 1,848.18
1/4 Maple Leaf 0.25 439.83 470.93 1,883.73
1/10 Maple Leaf 0.10 175.93 191.93 1,919.27
Mexican 50 peso 1.21 2,125.33 2,142.33 1,776.84
.9999 bar 1.00 1,783.32 1,794.32 1,794.32
SPOT SILVER: 34.62      
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 24,570.98 24,820.98 34.71
US 40% silver 1/2s 0.30 9,739.43 9,914.43 33.61
100 oz .999 bar 100.00 3,461.50 3,511.50 35.12
10 oz .999 bar 10.00 351.15 353.65 35.37
1 oz .999 round 1.00 34.47 35.32 35.32
Am Eagle, 200 oz Min 1.00 36.22 36.87 36.87
SPOT PLATINUM: 1,690.30      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Platypus 1.00 1,715.30 1,755.30 1,755.30
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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.
  • 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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