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Thursday, 20 June a.d. 2013 Browse the commentary archive

If Bernanke's mere mention, his hint, that the Fed might taper QE IF -- if -- the economy improves could wreak such havoc on markets, how will he ever taper off in fact? He can't.

In two days the Dow has lost 3.7%, the S&P 3.4%. How many days like that can Bernanke or his successor stand? How many such days can the White House stand? Dow today lost 353.87 points (2.34%) and ended at 14,7458.32. S&P tumbled 40.74 (2.5%) to 1,588.19.

Both stock indices sliced through their bottom channel lines & their 50 day moving averages. Next support stands at 14,550 and 1545. Both indices will probably reach that.

Ahh, but silver & gold both fell more than stocks, so the Dow in Gold and the Dow in Silver both made new highs.

Dow in gold rose about half an ounce to 11.485 oz (G$237.42), up 4.32%. If it corrects 38.2% of the fall from 2007 to 2011, it would rise to 11.6 oz.

Dow in silver rose 45.62 oz (6.53%) to 744.54 oz. A 61.8% correction of its 2007 - 2011 fall would take it to 802.8 oz.

Think a moment about currencies. Major determinant of a currency's exchange rate is what interest rate it pays. And bond prices move opposite interest rates. Bernanke's suggestion that the Fed would stop supporting bond prices/suppressing interest rates by buying bonds sent the 10 year T-not rate gap up. Closed at 2.419%, confirming a break out above last year's high, & setting me to wondering if Bernanke's Bond Bubble is bursting. Oh, this is going to be a mess, after he has ruined interest rates on everything else and forced everyone into bonds. Door to escape is very low and narrow as they try to flee bonds.

Rising interest rates are not healthy for gold, either, since gold pays no interest. Higher rates rise, more income must be foregone to hold gold. But then, rising rates will also knock any housing recovery in the head.

US dollar index rose another 0.64% today (50 basis points) for a two day gain of 1.54%. It ended at 81.84. Certainly will rise through 82, perhaps to 83.3.

Meanwhile the yen and euro have hit the skids. Yen dropped down 0.92% to touch its 20 DMA and close 102.79 cents/Y100. Euro lost only 0.54%, also touched its 20 DMA, & closed $1.3220.

Gold & silver needed a break, and today got one. Gold cascaded $87.70 (6.39%) to $1,285.90. Silver caved in 8.3%, 180 cents, to 1982.2c.

If y'all think this has me puking up fingernails in my waste- basket, think again. This is, I reckon, gold's last plunge for this correction & I am glad to see it. Ditto for silver.

Whither gold from here? It could stop at $1,260, or, if not, $1,125. That's where trading channel bottoms hit.

Silver either stops about 1875c or drops to 1750c. Before that comes support from 2010 at about 1950c.

This ought to be the last plunge of this long correction. It shouldn't carry much further, but for now we watch & wait, looking for signs of selling exhaustion and reversal.

You are watching Bernanke's clever inflation web come unraveled. Since 2008 he has taken the Fed & the world's central banks into the terra incognita of endless inflation. It was a brave bet, but one destined to come up snake-eyes.

However, all that money he has created hasn't gone to money heaven. It's still out there, and from here he has no option but to keep on inflating. Certainly, he doesn't seem to have the will to stop inflating and screw up interest rates to 24%. He ain't Iron Paul Volcker, & Obama ain't Ronald Reagan.

What happens when the world at large grasps that stocks were rising on inflationary gas? That the bond bubble is bursting? That the economic recovery existed only in the Fed's mind & government statistics?

Some of them will buy gold, and the door into the gold market is far, far smaller than the door out of the bond market. Gold & silver could rally savagely.

I can wait, patiently.

On 20 June 451 in France took place the Battle of Chalons or the Catalaunian Plains between a coalition of Roman & Visigothic forces and the army of Attila the Hun & some Germans. Attila's defeat marked the beginning of the end for his power. He attacked again in Italy the following year, but withdrew. He died early in 453.

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-Jun-13 Price Change % Change
Gold, $/oz 1,285.00 -87.70 -6.39%
Silver, $/oz 19.82 -1.80 -8.32%
Gold/Silver Ratio 64.827 1.341 2.11%
Silver/Gold Ratio 0.0154 -0.0003 -2.07%
Platinum 1,363.10 -60.10 -4.22%
Palladium 663.55 -31.30 -4.50%
S&P 500 1,588.19 -40.74 -2.50%
Dow 14,758.32 -353.87 -2.34%
Dow in GOLD $s 237.42 9.84 4.32%
Dow in GOLD oz 11.49 0.48 4.32%
Dow in SILVER oz 744.54 45.62 6.53%
US Dollar Index 81.84 0.50 0.61%
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SPOT GOLD: 1,279.05      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,316.14 1,321.90 1,321.90
1/2 AE 0.50 655.00 676.30 1,352.60
1/4 AE 0.25 330.70 344.54 1,378.18
1/10 AE 0.10 134.20 140.38 1,403.76
Aust. 100 corona 0.98 1,244.95 1,258.95 1,284.38
British sovereign 0.24 302.89 312.89 1,329.21
French 20 franc 0.19 238.80 241.80 1,295.12
Krugerrand 1.00 1,294.40 1,307.40 1,307.40
Maple Leaf 1.00 1,294.05 1,309.05 1,309.05
1/2 Maple Leaf 0.50 735.45 671.50 1,343.00
1/4 Maple Leaf 0.25 326.16 342.15 1,368.58
1/10 Maple Leaf 0.10 135.58 139.42 1,394.16
Mexican 50 peso 1.21 1,534.31 1,548.15 1,284.03
.9999 bar 1.00 1,283.53 1,294.53 1,294.53
SPOT SILVER: 19.76      
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 15,379.65 15,772.90 22.06
US 40% silver 1/2s 0.30 5,460.45 5,830.45 19.76
100 oz .999 bar 100.00 1,976.00 2,051.00 20.51
10 oz .999 bar 10.00 202.60 203.60 20.36
1 oz .999 round 1.00 19.86 20.61 20.61
Am Eagle, 200 oz Min 1.00 21.01 22.41 22.41
SPOT PLATINUM: 1,363.10      
Plat. Platypus 1.00 1,388.10 1,428.10 1,428.10
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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.
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  • 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.
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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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