The Moneychanger
Weekly Commentary
Friday, 31 May a.d. 2013 Browse the commentary archive
Here's the weekly scorecard:
  24-May-13 31-May-13 Change % Change
Silver, cents/oz. 2,248.20 2,222.80 -25.40 -1.1
Gold, dollars/oz. 1,386.60 1,392.60 6.00 0.4
Gold/silver ratio 61.676 62.651 0.970 1.6
Silver/gold ratio 0.0162 0.0160 -0.0003 -1.6
Dow in Gold Dollars (DIG$) 228.14 224.38 -3.77 -1.7
Dow in gold ounces 11.04 10.85 -0.18 -1.7
Dow in Silver ounces 680.69 680.02 -0.66 -0.1
Dow Industrials 15,303.18 15,115.57 -187.61 -1.2
S&P500 1,649.61 1,630.74 -18.87 -1.1
US dollar index 83.57 83.28 -0.29 -0.3
Platinum 1,451.90 1,460.60 8.70 0.6
Palladium 726.45 751.05 24.60 3.4

It's Saturday morning and I'm sorry I didn't send this out yesterday, but I had to take my wife to the hospital for chest pain. After two heart surgeries, that gets your attention. She never had it before, & an EKG showed nothing, so we came home and enjoyed each other's company, with a friend and grandson. I'd appreciate y'all praying for Susan.

For some markets it was a week of confirmation. For others, confusion continued. Let's look.

Both the Dow and S&P500 LOUDLY confirmed last week's key reversal. Big break came Friday, with the Dow diving 208.96 (1.36% -- owch!) to 15,115.57 while the S&P500 plummeted 23.67 (1.43%) to 1,630.74. Both confirmed a downtrend by closing below their 20 DMAs (15,213 & 1,644.81). Both fell off badly at day's end, and both closed on the day's lows. If y'all can find any ground for optimism there, let me know.

How can I remain so negative on stocks when even with yesterday's fall they have gained 17% since 15 November 2012? Simple: I don't buy bubbles. Stocks are in a bubble inflated by Bernanke's money creation. After a bull market lasting from 1982 to 2000, stocks began a bear market (primary down trend) that probably has another two years, perhaps another five years to run. Their present rise may reach 16,000 after this correction, may last into next year, but the eventual & sudden outcome will be weeping, wailing, & gnashing of teeth. It is not the much-ballyhooed economic recovery that is boosting stocks, but a flood of newly-created fiat money. Ponder this: From 10 November 2008 Bernanke took the Fed's balance sheet from $0.961 trillion to $2.274 trillion on 31 December 2008. He didn't just double the balance sheet, he added not 100%, but 137%. And for every dollar that balance sheet grows, the Fed creates a dollar, and the banks create more dollars.

From 31 December 2008's $2.274 trillion, by 22 May 2013 he had fertilized the balance sheet to $3.441 trillion, adding another 50%. Since December 2002, the Fed's balance sheet has grown 505%.

Exit strategy? He has none. Bull market in stocks? All Quantitative Easing. Increased consumer demand? Maybe, among those who haven't already given up looking for a job. Higher home prices? Great way to work off a glutted inventory, in the face of chronic unemployment.

So if you believe that an economy can be made to run on inflation, that companies & economy can grow & profit on that inflationary diet as they did so recently in Zimbabwe, buy those stocks! But you'd better be nimble, and you'd better be quick. Me, I'll wait until those inflationary chickens come home to roost. They always do.

The Dow in Gold & the Dow in Silver both dropped slightly this week, but only did us the favor of continuing to roll over. They have not yet, however, confirmed a top by dropping below their 20 day moving average. As they are dancing with their long term downtrend lines, this we would like to see to confirm that metals' lows are behind us.

The US Dollar Index keeps on refusing to state clearly its intentions. This week it closed Thursday right at 83, but Friday promptly rose 27.4 basis points (0.35%) to 83.282. It remains below its 20 DMA (83.40) but won't confirm a change of short term trend until it closes below 82.90.

Not helping the dollar index are the upside breakouts in the 10 year and 30 year Treasury yields. (Bonds' value drops when their yield rises.) That causes Ben two-stage indigestion: it suggests lots of folks will be selling bonds, effectively selling dollars & driving the dollar down. It also suggests interest rates will keep rising. Whoops. That won't help stocks, will it? Or the housing market? At least, not according to Keynesian dogma, of which Bernanke is the pope.

Euro had a rough day, off 0.38% to $1.2998. However, of this week's gains it saved the close above all its moving averages except the 200 ($1.3001). Euro has marked out a little uptrend, & that remains in force.

The yen, bane of stocks, keeps on rising, albeit glacially. Up Friday 0.31% to 99.58 cents/Y100.

Friday silver & gold paid back all of Thursday's gains, but are still speaking out of both sides of the mouth. Gold buckled $18.90 yesterday to $1,392.60 while silver caved 44.6 cents to close at 2222.8c.

Think first about the background. At the end of a 20+ month correction, silver & gold cascaded down in April. That could mark selling's exhaustion -- could. It also might set both up for one final dip down. I don't know which it is, and won't be able to say with certainty until both close ABOVE the breakdown points, 2750c & $1,550. Arguing for the downmove's completion are the double bottoms both left behind in May. Arguing most strongly that the April break did not mark the end of a bull market is its failure as yet to fulfill time and price targets. The bull market hasn't lasted long enough or risen high enough.

Remember that silver & gold corrections can be brutal. In 2008 gold gave back 30% of its peak, while silver gave back 105% of it previous rise (that's not an error, that's what it did), and 57.5% of its peak. Gold came back to rise about 2-1/2 times that low, silver 5-1/2 times. From 1974 - 1976 gold lost 48% from its high. Silver is now 54% off its last high, gold 26%. In 1987 stocks fell in October 36.1% off their highs that year. In bull markets, corrections happen.

Friday gold high a $1,420.60 high & backed off, as expected. In US trading it came back to $1,406 about 10:00, then in one jump fell $11 to $1,396. Never climbed again above $1,395 and change, and closed at $1,392.60. Traded in the aftermarket down to $1,388.

Oddly enough (I just report what the chart says) that fall did not take gold below it's short term uptrend line, but it did land smack on it. On the other hand, $1,415 - $1,420 has now twice proven itself strong resistance, and gold failed to cut through the downtrend line from the April high, and failed to cut through its 20 DMA. Monday will tell whether gold will make another try at $1,420, or follow through earthward for another plunge.

Silver's case is different. Not counting the plunge two weeks ago Monday, silver has formed a little range bottomed on 2200c. Yesterday it failed to cross its 20 DMA and failed to hang on above its downtrend line from the April highs. Unless silver & gold rise on Monday & make up the ground lost Friday, lower prices will come. An upward turnaround Monday will still leave us wondering until silver conquers 2300c and gold $1,420.

Longer term support comes in about $1,320 for gold and $1,050. Silver has similar support about 1950c. I'm not forecasting a return to those prices, only pointing out that should present levels not hold, those are the next support areas.

Since gold and silver have a very strong seasonal tendency to make lows in June, time is running out for further downside. Whatever happens in silver & gold, it will likely have happened by end-June, end-July at the latest. But what do I know? I'm just a natural born fool from Tennessee, too much a fool even to believe Our Central Bank Masters when they tell us, "It's different this time."

On 31 May 1790 President Washington signed the first US copyright law giving a monopoly of 14 years to books written by US citizens. Oddly, the Tennessee Constitution, Art. I, Sec. 22 (and probably your state constitution) "that perpetuities and monopolies are contrary to the genius of a free State, and shall not be allowed." But what is a patent or a copyright but a "monopoly"? What is the charter of the Federal Reserve, with no expiration, but a "perpetuity"? Why do we have these constitutions if we ignore them?

But then, Art. 1, Sec. 2, says, "That government being instituted for the common benefit, the doctrine of non-resistance against arbitrary power & oppression is absurd, slavish, and destructive of the good & happiness of mankind."

We'll have to have a revolution in this country. Oh, I certainly do NOT mean to reach for your guns and do violence, because that won't accomplish anything but a worse tyranny, death, and horrible destruction. But we must resist. We must say NO! And overthrow the enormous pile of regulation and regimentation & intimidation, the whole fascist & socialist superstructure that has been piled over our God-given liberties since 1865.

The problem with producers is that they produce. Drop us down in a wilderness and we'll start building and plowing and organizing, so even when government stands in our way, we will still try to build and produce around its tyranny. That has to stop. We have to say, "No, you cannot take away my freedom, and I will exercise it in the face of all your threats and regulations." Many will suffer, many will be jailed, some may die there, but when a whole nation says NO, peaceably but relentlessly, then we can recover our liberty.

Anything else is absurd, slavish, and destructive of the good and happiness of mankind.

Y'all enjoy your weekend!

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
31-May-13 Price Change % Change
Gold, $/oz 1,392.60 18.90 1.4
Silver, $/oz 22.23 -0.45 -2.0
Gold/Silver Ratio 62.651 0.863 1.4
Silver/Gold Ratio 0.0160 -0.0003 -2.0
Platinum 1,460.60 -20.90 -1.4
Palladium 751.05 -6.95 -0.9
S&P 500 1,630.74 -23.67 -1.4
Dow 15,115.57 -208.96 -1.4
Dow in GOLD $s 224.38 -6.21 -2.7
Dow in GOLD oz 10.85 -0.30 -2.7
Dow in SILVER oz 680.02 4.16 0.6
US Dollar Index 83.28 0.27 0.3
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SPOT GOLD: 1,387.10      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,425.94 1,433.57 1,433.57
1/2 AE 0.50 710.38 733.43 1,466.86
1/4 AE 0.25 358.65 373.65 1,494.60
1/10 AE 0.10 145.54 152.23 1,522.34
Aust. 100 corona 0.98 1,351.48 1,365.48 1,393.06
British sovereign 0.24 328.48 338.48 1,437.90
French 20 franc 0.19 258.97 261.97 1,403.17
Krugerrand 1.00 1,406.52 1,419.52 1,419.52
Maple Leaf 1.00 1,402.10 1,417.10 1,417.10
1/2 Maple Leaf 0.50 797.58 728.23 1,456.46
1/4 Maple Leaf 0.25 353.71 371.05 1,484.20
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Mexican 50 peso 1.21 1,663.93 1,678.43 1,392.08
.9999 bar 1.00 1,391.95 1,402.95 1,402.95
SPOT SILVER: 22.23      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 29.00 32.00 41.83
VG+ Peace dollar 0.77 26.00 29.00 37.91
90% silver coin bags 0.72 17,288.70 17,788.70 24.88
US 40% silver 1/2s 0.30 6,189.10 6,559.10 22.23
100 oz .999 bar 100.00 2,223.00 2,298.00 22.98
10 oz .999 bar 10.00 227.30 228.30 22.83
1 oz .999 round 1.00 22.33 23.23 23.23
Am Eagle, 200 oz Min 1.00 23.48 25.23 25.23
SPOT PLATINUM: 1,460.60      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Platinum Platypus 1.00 1,485.60 1,525.60 1,525.60
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© 2015 Little Mountain Corporation, d.b.a. The Moneychanger. All rights reserved. May not be republished in any form, including electronically, without our express permission.

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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