The Moneychanger
Daily Commentary
Wednesday, 3 April a.d. 2013 Browse the commentary archive

Yesterday I recommended swapping from gold to silver. Today the ratio closed at 58:1 (58 oz. of silver buys one ounce of gold) & acts like it doesn't want to go higher. Even if it does, 60:1 ought to stop it cold, and that's only 3.4% above us. Remember, "Bulls get rich, & bears get rich, but pigs get slaughtered."

I expect the next big move in the ratio will carry it down to 30:1 (thirty ounces of silver buys one ounce of gold). Here's how that trade might look, accounting for some transaction costs.

You swap one ounce of gold today for 55 oz of silver. When the ratio drops to 30:1, you swap silver for gold but only realize a ratio of 32:1.

When you swap your silver back into gold, you get 1.7188 oz of gold (55/32), which by my reckoning is 72% more gold than you began with.

This is the only way I know to take a sterile investment that throws off no dividends or interest (silver & gold) and, while you are waiting for the price to rise, to increase the number of ounces you hold without adding any more capital (except shipping).

These ratio trades do not linger at tops and bottoms, so better act soon.

View the ratio chart at http://bit.ly/10to8tA

How could that ratio trade go wrong? You might swap at 58:1 and watch it go to 84:1. Nothing is risk-free.

I keep getting emails from folks concerned that government(s) are "controlling" all markets. Sure they manipulate markets, but here's why they cannot control them, i.e., drive them permanently up or down when the primary trends runs the other way.

Even creating money out of thin air, they never dare to print so much that they can buy everything. Thus they are constrained to manipulate markets "at the margin." It's like turning the cow on the edge when you want to turn the herd. No way you can force 50 cows to go your way, but the closer you get to that cow at the margin, the more she'll turn in on the other cows, and move them where you will.

So governments manipulate at the margins, & in the most vulnerable and volatile markets. So if they want to force gold down, they hit silver hard. If they want to drive stocks up, they buy S&P500 futures, and let the arbitrageurs see the futures rising while the index itself (the underlying stocks) is flat so they will begin buying the stocks and drive the index up.

But what do I know? I'm only a natural born fool from Tennessee, & them Washington & New York fellers would never tell me what they're doing. But that's how I would do it.

Don't miss the point: whenever the herd turns on the manipulators, it will run clean over them & leave 'em stomped in the mud.

Stocks today did something that looks an awful lot like a key reversal. After breaking into new high territory yesterday, they closed lower today. S&P500 was hit much harder today, down 1.05$ (16.56) to 1,553.69. That closed it below its 20 day moving average (1,555.97). Dow Industrials lost only 0.76% (111.66 points) to close 14,550.35, just above the 20 DMA (14,483.96).

To confirm a reversal both indices should close tolerably lower tomorrow. In both cases the faster moving average of the MACD is below the slower which points momentum down.

US dollar broke 0.2% (15.2 basis points) to 82.729. Dollar gets real carsick around 83, and slows down. At $1.2849 (up 0.24%) the euro remains below its 200 DMA, not a sign to encourage anybody. Yen gained 0.38% today to 107.46 cents/Y100, and closed higher than its 50 dma (107.13).

Silver & gold were slapped badly again today. Gold lost $22.30 (1.4%) to close Comex at $1,552.80. Silver gave up 44.4 cents (1.6%) and ended at 2677.3c.

Today's fall takes gold back to the downtrend line from its August 2011 peak. This kissing back to a trend line is common behavior for markets, so today's low is a likely candidate for this fall to stop. If it doesn't stop there, then the last low at $1,526.70 is the next target. Volume is rising, so more downside is likely.

Buy gold. Bottom can come anywhere in the $1,530 - $1,560 range.

If it is turning around, it will prove its intention by closing higher than $1,580.

See a gold chart at http://bit.ly/XYAesN

Silver had been trading in a channel paralleling the downtrend line form the 4/2011 high, but higher. Today it broke the bottom of that channel. Low came at 2672 cents, and it closed not far above that. Today it's oversold-er than yesterday. Chart's at http://bit.ly/T07wYB

Price extremes in gold & silver -- highs or lows -- often (I want to say "usually") coincide with highs in the metals themselves, or within a few days. Last cycle was an exception, when the ratio bottomed at 32:1 the day silver hit its high at end-April 2011, but gold, driven by the European crisis, kept on rising into the end of August. However, the ratio warned us clearly that the rally that had begun in fall 2008 was near its end.

The ratio flashes a similar warning at gold and silver lows. That's where it often peaks. Problem with that is, has the Ratio topped? Can't say that yet, because it still needs to confirm by reversing -- that means silver strength against gold. Watch for it.

If you sit and watch a market for two years hit the same support around at 2650c and don't buy when it approaches that support again, why in the world do you keep watching it?

Possible that Stocks topped today for this move, but silver & gold have not yet inarguably proved a bottom. Gold/Silver ratio appears to be topping. US dollar probably has more strength in front of it, but only because the alternatives are so nauseating.

On 3 April 1882 Jesse James was shot in the back & killed by his cousin, Robert Ford. Jesse & his "gang" had been Confederate partisans but were not allowed surrender and parole at the War's end, so they just kept on fighting and robbing banks.

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-Apr-13 Price Change % Change
Gold, $/oz 1,552.80 -22.30 -1.42%
Silver, $/oz 26.77 -0.44 -1.63%
Gold/Silver Ratio 57.999 0.127 0.22%
Silver/Gold Ratio 0.0172 -0.0000 -0.22%
Platinum 1,539.80 -32.00 -2.04%
Palladium 754.30 -13.95 -1.82%
S&P 500 1,553.69 -16.56 -1.05%
Dow 14,550.35 -111.66 -0.76%
Dow in GOLD $s 193.70 7.50 4.03%
Dow in GOLD oz 9.37 0.36 4.03%
Dow in SILVER oz 543.47 4.76 0.88%
US Dollar Index 82.73 -0.15 -0.18%
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: 1,555.70      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,597.70 1,607.82 1,607.82
1/2 AE 0.50 796.78 822.58 1,645.15
1/4 AE 0.25 402.28 419.07 1,676.27
1/10 AE 0.10 163.24 170.74 1,707.38
Aust. 100 corona 0.98 1,512.70 1,526.70 1,557.54
British sovereign 0.24 368.41 378.41 1,607.52
French 20 franc 0.19 290.45 293.45 1,571.77
Krugerrand 1.00 1,572.81 1,586.81 1,586.81
Maple Leaf 1.00 1,565.70 1,580.70 1,580.70
1/2 Maple Leaf 0.50 894.53 816.74 1,633.49
1/4 Maple Leaf 0.25 396.70 416.15 1,664.60
1/10 Maple Leaf 0.10 164.90 169.57 1,695.71
Mexican 50 peso 1.21 1,866.17 1,881.71 1,560.68
.9999 bar 1.00 1,561.14 1,572.14 1,572.14
SPOT SILVER: 26.91      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 30.50 34.00 44.44
VG+ Peace dollar 0.77 28.00 31.00 40.52
90% silver coin bags 0.72 20,345.33 20,670.33 28.91
US 40% silver 1/2s 0.30 7,568.23 7,938.23 26.91
100 oz .999 bar 100.00 2,690.50 2,730.50 27.31
10 oz .999 bar 10.00 274.05 275.05 27.51
1 oz .999 round 1.00 27.01 27.46 27.46
Am Eagle, 200 oz Min 1.00 28.16 29.26 29.26
SPOT PLATINUM: 1,539.80      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Platypus 1.00 1,564.80 1,604.80 1,604.80
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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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