The Moneychanger
Daily Commentary
Wednesday, 20 February a.d. 2013 Browse the commentary archive

As Steve Saville of so accurately notes, the Fed's purpose is not to manage inflation, but to manage inflation EXPECTATIONS.

Behold, the Fed MUST inflate, or die. It was created to inflate, & it must inflate or die, taking the economy down with it. Therefore, whenever the Fed talks about ending or containing inflation, it is lying. But it lies artfully & well, as it must to keep the victims of inflation -- that's y'all -- in the trap. Otherwise the realizers will wake up and escape the depreciating dollar.

In the course of managing inflation expectations, the Fed from time to time appears to change course abruptly, as it seemed with the FOMC minutes released today. Why? To punish the realizers, to make them doubt themselves and scoot them back into the trap. The trap remains eternal, only the number of victims varies.

Today on the Fed's FOMC publication stocks, bonds, & metals tanked & the dollar shot up 55 basis points. Is that merely Fed clumsiness roiling markets? Well, no, although that often explains their goofy moves. Rather, it is aimed at manipulating sentiment in their direction, at confusing markets so no movement -- like a flight from the dollar into gold and silver -- builds too much momentum.

Look, do y'all want to understand the Fed & its magic? It's all explained in the movie, "The Wizard of Oz." Remember when Dorothy & her friends visit the Great & Terrible Oz in his audience room? They are trembling, but her little dog Toto pulls back the curtain that conceals the real wizard, working the levers of the smoke machine and mirrors. If you want to understand the Fed, just remember that scene. The shabby, feckless medicine man behind the curtain is Ben Bernanke, & he & his crew are constantly shouting to the trembling public, "Pay no attention to the man behind the curtain! I am the Great & Terrible Oz!"

That great philosopher Yogurt in Mel Brooks' movie "Space Balls" summed it up: "It's moichendizing!"

Here's a quotation that says it all, from Peter Schiff in a CNBC interview on 15 February:

"The real gold investors are not selling. The traders are selling; those are leveraged speculators focused on the short term price. Individual investors, buyers of gold in the past years, and my clients are buying for gold for his store of value. They see this price correction as an opportunity to buy more. They do not care about the short term market noise."

Now, what happened today? Stocks took a deep wound. Dow fell 108.13 (0.77%) to 13,927.54 & S&P500 fell 18.99 (1.24%) to 1,511.95. Next support for the Dow is about 13,850 - 13,800. Below that lay large gaps, with the first support about 13,600, next at 13,350.

That fall doesn't nearly break stocks' uptrend yet. A close below 13,750 would do that, though.

Here's an eyecatcher: Dow in Gold and the Dow in Silver both gapped UP [not down] strongly today. Looks like an exhaustion gap, that is, the limit of the move. If so, both will trade lower immediately or after a few days crabwise movement. These indicators show us not only what stocks are doing, but what silver & gold intend, too.

The US dollar index' surge today hurt the euro much more than the yen. Dollar index rose 55.4 basis points (0.71%) to 81.068. Don't miss the close above 81. Just above at 80.91 stands the 200 Day Moving Average. How the dollar acts there will foretell whether it will rally or melt away again. The 80.66 to 80.90 level has stopped rises since Mid-November 2012, so today's jump promises higher dollar rates.

Today the yen closed 106.84c/Y100, down a tiny 0.04%. The euro, however, fell 0.82% to $1.3277, so maybe the entire FOMC drama was staged to bring the euro down and satisfy Draghi after the price-cutting Japanese got away with their spoils at the G20 meeting. Euro is verging on falling through its 50 & 62 DMAs.

Whooo! Gold lost $26.00 (1.62%) to $1,577.60 and silver lost 79.8 cents (2.71%) to 2861.5 cents.

Reckon that's the Day of Doom for silver & gold? Ahh, come not too hastily to judgment.

Today's fall brought silver & gold to the bottom of their trading channels. That ought to be the place where they turn around, "ought" being the key word. But then, it's hard to imagine sentiment becoming more universally negative. The only fact that bothers me and argues against that turn around is that gold closed today the least bit below the downtrend line from the 2011 high. Silver did not. In fact, silver's bottom channel line sands considerably above that downtrend line from the 2011 high, still.

Then there are other indicators. The RSI for gold has been extremely low for a week, lower than 2008, lower than any time in the past ten years. Gold's MACD has turned straight down, lowest since mid-2012.

Silver's RSI has been very negative for two days, & the MACD is plummeting. RSI isn't the lowest in 10 years, but about the only time it was lower was 2008. Those indicators scream that some pivotal low is near. However, "near" might last a while.

The Gold/Silver ratio has nearly reached the top of its trading channel, too, also whispering that some sort of low in metals lurks in the near future. Tis also way overbought. Remember, too, those Bollinger Bands I mentioned yesterday, showing gold & silver poised for a turnaround.

Gold's low for today was $1,565.60, which marked a retracement of the previous rally slightly greater than 75%. Silver's 75% retracement lies at 2842c, & today's low was 2831c.

If none of these factors catch silver & gold, look for falls to $1,525 and silver to 2610c.

Wait a day or so before buying, to see some sign confirming a turnaround. Meanwhile keep your eye on the horizon, not on the headlines.

On 20 February 1725 New Hampshire militiamen took part in the first recorded scalping of Indians by whites in North America, according to one of the inaccurate websites I use for daily history. Actually it was the whites, I believe, British or French, who taught the Indians to scalp by paying bounties for the scalps of their enemies. Massachusetts offered a scalp bounty during King William's War in 1689, and again in 1703 and 1722. Mercifully, the practice has largely disappeared at private hands and has today been taken over wholly by the Federal Reserve. The yankee government scalps anyone the Fed might miss. Professionalism -- it's the cure for every ill.

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
20-Feb-13 Price Change % Change
Gold, $/oz 1,577.60 -26.00 -1.62%
Silver, $/oz 28.62 -0.80 -2.71%
Gold/Silver Ratio 55.132 0.612 1.12%
Silver/Gold Ratio 0.0181 -0.0002 -1.11%
Platinum 1,646.00 -50.40 -2.97%
Palladium 736.00 -27.75 -3.63%
S&P 500 1,511.95 -18.99 -1.24%
Dow 13,927.54 -108.13 -0.77%
Dow in GOLD $s 182.50 7.50 4.29%
Dow in GOLD oz 8.83 0.36 4.29%
Dow in SILVER oz 486.72 9.53 2.00%
US Dollar Index 81.07 0.55 0.69%
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SPOT GOLD: 1,566.00      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,606.72 1,618.46 1,618.46
1/2 AE 0.50 798.15 824.89 1,649.78
1/4 AE 0.25 399.08 420.28 1,681.10
1/10 AE 0.10 164.33 171.48 1,714.77
Aust. 100 corona 0.98 1,527.32 1,541.32 1,572.45
British sovereign 0.24 370.85 380.85 1,617.88
French 20 franc 0.19 294.13 299.68 1,605.15
Krugerrand 1.00 1,591.06 1,606.06 1,606.06
Maple Leaf 1.00 1,576.00 1,591.00 1,591.00
1/2 Maple Leaf 0.50 900.45 822.15 1,644.30
1/4 Maple Leaf 0.25 399.33 418.91 1,675.62
1/10 Maple Leaf 0.10 166.00 170.69 1,706.94
Mexican 50 peso 1.21 1,878.53 1,895.53 1,572.14
.9999 bar 1.00 1,571.48 1,582.48 1,582.48
SPOT SILVER: 28.41      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 30.50 34.00 44.44
VG+ Peace dollar 0.77 29.00 33.00 43.14
90% silver coin bags 0.72 20,702.83 21,031.83 29.42
US 40% silver 1/2s 0.30 8,335.23 8,410.23 28.51
100 oz .999 bar 100.00 2,840.50 2,880.50 28.81
10 oz .999 bar 10.00 289.05 291.55 29.16
1 oz .999 round 1.00 28.51 28.96 28.96
Am Eagle, 200 oz Min 1.00 29.66 30.66 30.66
SPOT PLATINUM: 1,646.00      
Plat. Platypus 1.00 1,671.00 1,711.00 1,711.00
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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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