The Moneychanger
Daily Commentary
Tuesday, 29 January a.d. 2013 Browse the commentary archive

Everybody has opinions, but only those who have convictions will put their money where their mouth is.

I'm talking about the bond bubble. Botulism Ben's strategy is founded on near-zero interest rates, but Ben doesn't control interest rates, only the Fed Funds rate & his own jaw. Once markets take the bit in their mouth and decide they no longer love bonds, they'll sell those bonds & interest rates will rise (yes, interest rates & bond prices move opposite to each other).

Problem is that Ben, like much modern medicine, fixes one only to break two more. His zero interest rate policy has created a bubble in -- guess what? -- bonds. After all, he told the world in advance he was going to keep on suppressing interest rates, so there was little danger in buying bonds, just as in 2006, there was little danger in residential real estate.

Point is, the yield on the 10 year Treasury note has risen to 2%, nay, has been rising since Mid-December. Oh, so far it's only a cloud no bigger than a man's hand on the horizon, but it continues to grow & move toward us. Should that 10 year Treasury yield cross 2.40%, Oh, my! The mayhem will become general.

Y'all know how I love numbers, so I started poking around in history. Did y'all know that with the Dow's close at 13,954.42 today, it stood at its highest price since 15 October 2007, not long after the all time high close on 9 October 2007 at 14,164.53?

Wow. Pretty good, huh? But in the same 5-1/4 years it has taken the Dow to scrabble back to its 2007 height, gold has more than doubled, from $757.10 to $1,660.80 (2.197x) and silver has multiplied 2.26 times from 1376 cents an ounce to 3015.9 cents today.

Yeah, buddy! Them stocks are on fahr like a house a-burning!

US Dollar index is cowering under its 20 day moving average (79.95) like a little feist dog somebody's been kicking all the time. It's built a little even-sided triangle here, so a break up or down lies in the cards, but which way?

Tomorrow meets & pontificates the Federal Open Market Committee, & markets, unaware of their true ignorance & fecklessness, will move with whatever silly pronouncement they make.

That's what got me started down this road. Some bond traders are betting that the FOMC will cease buying so many bonds if unemployment improves, hence they are selling & yields rising.

But this fool in Tennessee don't think it makes any more difference than whether somebody shoots you with a .45 caliber M1911 pistol or a .40 caliber Glock. Unemployment up or unemployment down, the Fed will keep flooding the market with new dollars. Their ideological Keynesianism limits them to that one response.

US dollar index lost 21.1 basis points (0.27%) to end at 79.556. Meanwhile the Euro rose 0.3% to $1.3494, and continues to paint a chart that looks like an island reversal topped at $1.3500. Won't last long if that's what it is. Yen fell a nothing 0.05% to 110.21 cents/Y100. May have bottomed.

US$1=Y90.82=E0.7411=0.032093 oz Ag=0.000602 oz Au.

Silver gained 40.3 cents (1.3%) to 3115.9c while gold gained $7.90 (0.48%) to $1,660.8. That's nice, but may be driven by no more strength than folks backing out of their shorts before the uncertainty of the FOMC meeting.

Of silver & gold I might say, "It's always darkest before the dawn," but somebody might remind me that it also gets pretty dark right before a tornado rips through town. Still, it's true. Markets turn around at extremes of sentiment. When "everybody" thinks a market is going up, then it's probably not, because "everybody" has already bought & that market has run out of buyers. Ditto but inverted for declining markets: market has run out of sellers.

But I can wait patiently, because I know that silver & gold remain in a primary uptrend. Sooner or later, that bull trend will kick in again and carry them higher.

Bad, bad -- gold stands below all its moving averages, BUT is for the nonce at least holding on at $1,655 and at that uptrend line from the June 2012 low. We can't MAKE it rise, we just have to watch calmly. Bad news from the FOMC meeting tomorrow -- "We realize now what a terrible mistake our inflation has been since 1913, so we're going to shut the doors & advise the American people to start using gold and silver money" -- would drive gold down. Course, they might say something markets perceive as "positive" for gold. Yep, I know it's ridiculous, but we live in a world of illusion, & none on a grander scale than the Federal Reserve.

Silver on the other hand, doesn't look so bad. It stands above its 200 DMA (3065) and today closed above its 300 DMA (3113c) & 20 DMA (3112c). All this is nice, but silver must close above its 50 DMA (3189c) and then conquer the last high at 3249c.

Mark Twain once opened a lecture tour with, "Rumors of my death have been greatly exaggerated." Silver & gold could say the very same today.

Gold/Silver Ratio today registers 53.301:1. Still time to trade any remaining gold for silver, targeting a fall to 32:1 or lower (about a 40% gain in ounces). Call us if you are interested.

On 29 January 1820 died King George III, deaf, blind, and insane. Although the myths of American history paint him as a tyrant, he was in fact a pious and serious man. Unlike all his relatives, he married at 22 and never kept a mistress. He was devoted to his wife, by whom he had 15 children. He was often sneered at as "Farmer George" because of his devotion to scientific farming.

Truth is, George III was a constitutional monarch with limited powers. It was the Parliament that sought to tyrannize over America, and actually, to get the Americans to pay for some of the cost of defending themselves by new taxes.

That didn't work out. Still, if you look at how little government interfered in the citizens' lives under King George III, & how little they paid in taxes, how free they were, it's enough to make you nostalgic for "Farmer George."

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
29-Jan-13 Price Change % Change
Gold, $/oz 1,660.80 7.90 0.48%
Silver, $/oz 31.16 0.40 1.31%
Gold/Silver Ratio 53.301 -0.442 -0.82%
Silver/Gold Ratio 0.0188 0.0002 0.83%
Platinum 1,677.40 16.20 0.98%
Palladium 749.05 9.25 1.25%
S&P 500 1,507.84 7.66 0.51%
Dow 13,954.42 72.49 0.52%
Dow in GOLD $s 173.69 7.50 4.51%
Dow in GOLD oz 8.40 0.36 4.51%
Dow in SILVER oz 447.85 -3.51 -0.78%
US Dollar Index 79.56 -0.21 -0.26%
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: 1,662.90      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,706.14 1,718.61 1,718.61
1/2 AE 0.50 847.57 875.93 1,751.87
1/4 AE 0.25 423.78 446.28 1,785.12
1/10 AE 0.10 174.50 182.09 1,820.88
Aust. 100 corona 0.98 1,621.82 1,635.82 1,668.87
British sovereign 0.24 391.45 395.45 1,679.89
French 20 franc 0.19 310.46 314.46 1,684.32
Krugerrand 1.00 1,694.50 1,709.50 1,709.50
Maple Leaf 1.00 1,672.90 1,687.90 1,687.90
1/2 Maple Leaf 0.50 956.17 873.02 1,746.05
1/4 Maple Leaf 0.25 424.04 444.83 1,779.30
1/10 Maple Leaf 0.10 176.27 181.26 1,812.56
Mexican 50 peso 1.21 1,994.77 2,011.77 1,668.55
.9999 bar 1.00 1,668.72 1,679.72 1,679.72
SPOT SILVER: 31.42      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 30.50 34.00 0.04
VG+ Peace dollar 0.77 29.00 33.00 0.04
90% silver coin bags 0.72 22,894.30 23,251.80 32.52
US 40% silver 1/2s 0.30 9,224.65 9,299.65 31.52
100 oz .999 bar 100.00 3,142.00 3,182.00 31.82
10 oz .999 bar 10.00 319.20 321.70 32.17
1 oz .999 round 1.00 31.52 31.97 31.97
Am Eagle, 200 oz Min 1.00 32.67 33.67 33.67
SPOT PLATINUM: 1,677.40      
Plat. Platypus 1.00 1,702.40 1,742.40 1,742.40
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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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