The Moneychanger
Daily Commentary
Wednesday, 12 December a.d. 2012 Browse the commentary archive

The comrades on the Federal Open Market Committee announced a boon for the printer's union: more "accommodation." This comes in two forms, (1) the Fed buying Mortgage Backed Securities to the tune of $40 billion a month, and, after December, buying $45 bn a month in long term US treasuries. (Apparently the banks' balance sheets have not been fixed up yet, so the Fed must continue soaking up their bad paper.)

Using my lightning mathematics skills, I make that $85 billion a month of new money the Fed will create, or $1.02 Trillion in 2013.

FOMC also promised "more accommodation" (translation: "creating more money") and that it would keep the Fed Funds rate between zero and one-quarter percent till unemployment (now 7.5%) drops below 6-1/2%.

Now quick! Tell me what $1.02 trillion in new dollars will do to the value of already-existing dollars? There! I see that hand! Yes, it WILL lower the value of all those existing dollars. So all you trembling silver & gold investors who were fretting that the Fed might stop inflating, just rest easy. They just told you they will be inflating away all next year. I keep telling y'all, the Fed & Ben Bernanke are the best friends silver & gold have.

But maybe not stocks' best friends. Dow reached a high of 13,329 today (!), but finished the day nearer its 13,227 low. Dow gained 11.17 (0.08%) to close 13,259.61. S&P500 rode the same roller coaster, ending up only 2.79 (0.2%) at 1,430.63.

Technically, that performance can be explained another way. The Dow & the S&P500 both hit significant overhead resistance today, at 13,300 & 1,440. Both have reached that "pull the fuse or throw the dynamite" stage, & 'tain't clear to me which choice they'll make. Given the time of year I suspect both will rally further. Besides, both are above all their moving averages, so momentum is up. There's more: both have scratched out unbroken uptrends since mid-November. However, momentum indicators are warning that there's a limit to this rally -- not yet, but shortly.

Naturally the dollar fell like a mule had kicked it in the jaw. Dropped through support at 80 like a man walking into a manhole and lost 23.2 basis points (0.3%) to end at 79.821. Given the FOMC's announcement, I'm surprised it wasn't worse. Gives you an inkling how brain-scrubbed the public is.

What about the other two scrofulous, scabby, no-good, low-down trashy, sorry-as-gully-dirt fiat currencies? Makes little sense: euro rose 0.49%, yen fell 0.77%. At $1.3067 the euro bumped its head plumb against the overhead resistance. If it can break thru, it will sprint for $1.3400. Yen, on the other hand, lost a huge 0.77% to end at 120.26c/Y100. Gapped down again. Now I don't know, but if I were the Japanese Nice Government Men & I saw the dollar dropping & the Fed announcing plans to inflate like a puffer fish, I'd be selling yen & buying dollars to push down the rates. Especially if I ever wanted my economy to export to the US again.

US$1=Y83.15=E0.7653=0.029 667 oz Ag=0.000 583 oz Au.

Silver & gold have slapped me so many times I'm beginning to look like that little girl in "The Exorcist," but I'm going to try again today. I don't reckon I'll ever learn.

Gold gained $8.40 (0.5%) to $1,716.60 while silver added 76.6 cents (2.33%!) to close Comex at 3370.7c. Once again, it begins to look like both metals have bottomed.

Today gold scored a higher high ($1,722.50 v. $1,714.30 yesterday) & a higher low ($1,708.55 v. $1,705.45 yesterday). This leaves behind a double bottom at $1,672.50 in early November & $1,684.10 last week. Stayed well above that $1,705 support.

What's missing? Confirmation by closing over $1,725. However, that's liable to come in a one day jump.

Gold could only gainsay my interpretation that the bottom is in by closing below $1,705. Otherwise, it will move higher from here.

That silver was jumpy today, and all toward the ceiling. Low came at 3292c in European trading (about midnight NY time). By 9:00 a.m. silver had reached 3325c & was tugging at the leash. Somebody hit it, it fell back instantly to 3300c, then took off for the clouds, gapping & leaping to 3373.2. Rest of the day it backed off, but stayed mostly above 3340c.

'Twas a good day. Great day, matter of fact.

On the 4 month chart silver broke out upside from an even- sided triangle, & stands above its 50 (3298c) and 20 (3335c) day moving averages. Momentum indicators have turned or are turning up. 3400c may snag its feet for a minute, but silver should be headed for 3550c -- SOON.

Just to show you that no matter how healthy an animal or country is, the parasites are always ready to pounce, on 12 December 1791 the First Bank of the United States opened. It was part of the statist Alexander Hamilton's plan to create a central bank. Jefferson & Madison had beaten back the plan a year earlier, claiming the bank was unconstitutional & that it benefited merchants and investors at the people's expense. The bank lasted until its charter expired in 1811. The First Bank of the US was the SECOND attempt at foisting a central bank on the country, after the Bank of North America.

CHRISTMAS IS COMING!

But y'all still have time to order At Home in Dogwood Mudhole for your gift list. There is time, that is, if you act promptly and go to www.dogwoodmudhole.com.

Got a complaint from one reader yesterday. She said the book stuck to her hands. Every time she picked it up, she couldn't put it down. Worse yet, she said the folks in the lunch room were looking at her funny because she kept bursting out in fits of laughter.

Don't take my word for it, or hers, either. Go get yourself a copy of At Home in Dogwood Mudhole. www.dogwoodmudhole.com

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
12-Dec-12 Price Change % Change
Gold, $/oz 1,716.60 8.40 0.49%
Silver, $/oz 33.71 0.77 2.33%
Gold/Silver Ratio 50.927 -0.929 -1.79%
Silver/Gold Ratio 0.0196 0.0004 1.82%
Platinum 1,644.90 6.40 0.39%
Palladium 699.65 4.35 0.63%
S&P 500 1,430.63 2.79 0.20%
Dow 13,259.61 11.17 0.08%
Dow in GOLD $s 159.68 -0.63 -0.40%
Dow in GOLD oz 7.72 -0.03 -0.40%
Dow in SILVER oz 393.38 -8.81 -2.19%
US Dollar Index 79.82 -0.23 -0.29%
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: 1,714.20      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,765.63 1,774.20 1,774.20
1/2 AE 0.50 873.73 899.96 1,799.91
1/4 AE 0.25 441.15 454.26 1,817.05
1/10 AE 0.10 181.60 185.99 1,859.91
Aust. 100 corona 0.98 1,671.86 1,682.26 1,716.24
British sovereign 0.24 403.52 407.52 1,731.19
French 20 franc 0.19 320.04 324.04 1,735.62
Krugerrand 1.00 1,738.20 1,753.20 1,753.20
Maple Leaf 1.00 1,724.20 1,744.20 1,744.20
1/2 Maple Leaf 0.50 848.53 891.38 1,782.77
1/4 Maple Leaf 0.25 424.26 454.26 1,817.05
1/10 Maple Leaf 0.10 169.71 185.13 1,851.34
Mexican 50 peso 1.21 2,050.11 2,067.11 1,714.45
.9999 bar 1.00 1,720.20 1,731.20 1,731.20
SPOT SILVER: 33.58      
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 23,863.13 24,113.13 33.72
US 40% silver 1/2s 0.30 9,712.88 9,887.88 33.52
100 oz .999 bar 100.00 3,357.50 3,407.50 34.08
10 oz .999 bar 10.00 340.75 343.25 34.33
1 oz .999 round 1.00 33.43 34.28 34.28
Am Eagle, 200 oz Min 1.00 35.18 35.83 35.83
SPOT PLATINUM: 1,644.90      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Platypus 1.00 1,669.90 1,709.90 1,709.90
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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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