The Moneychanger
Daily Commentary
Monday, 22 July a.d. 2013 Browse the commentary archive

The Detroit bankruptcy has given us a harbinger of future municipal and state bankruptcies: the pensioners get a 90% haircut. This is inevitable. Municipalities & states promised pensions based on projections of stock market gains from the 1990s and earning 6% on bonds, then hit a stock bear market & Bubble Ben's zero interest rate policy. Pensioners will sue and scream, but will be lucky indeed to get anything. Whoops -- for three years Detroit paid nothing at all into its retirement fund. Well, they just FORGOT, I reckon.

I don't want to spoil y'all's supper, but I really haven't been candid. I've been seeing the bond bubble Bernanke has built since 2008 and the sovereign debt crisis -- including the good ol' USA, where the admitted government debt without the hidden liabilities is 105% of gross domestic product. Because everyone who receives government money will fight like a banshee to keep it coming, & no politician will say no, short of a collapse or dictator, spending will never be cut, which means default is likewise inevitable because revenue falls so short of spending. Whether the default comes through an outright repudiation (the best but least likely solution) or it comes through a hyperinflation to inflate away the debt, default will come.

Either way, if you are in dollars, stocks, or bonds, your goose will be charbroiled. I dislike telling y'all this because I dislike disaster-mongers, but there it is. Sure, sure, everyone will tell you it's impossible the US would default, it's unthinkable the Fed would allow a hyperinflation, etc., etc. They cannot admit the truth because it implies such horrors, but the truth won't go away. Bernanke and the central banks of the world have already put the world onto that path.

So now it becomes a question, would you rather hold dollars/stocks/bonds facing default or hyperinflation, or gold and silver threatened by another decline -- maybe?

Big moves today, all 9 months pregnant with meaning. Stocks hit new highs today. S&P hit its fifth new high in seven days, third new high in three days. Dow has made three new highs in the last seven trading days. Folks, it just don't get that good.

There's more: in the teeth of new stock highs, the Dow in silver & Dow in gold broke down today, decisively, unarguably, probably irrecallably. The US dollar index fell through support at 82.50, closing at 82.20, down 23.7 basis points or 0.3%. Finally, silver & gold gapped up 3.3% & 5.4%, causing a run on Tums and Tagamet in the neighborhood around the Federal Reserve in Washington.

Looking more closely, the Dow closed up 1.81 at 15,545.55, which is as close to flat as you can get without actually being a skillet. S&P500 made another new high, rising 3.445 (0.2%) to 1,695.53.

I have been expecting stocks to move even higher than highs we've seen, but I looked at 5 month chart today and my poor old eyes could see nothing but an arresting double top. Now, that's merely where they sit now, & both could move higher, wrecking that double top formation --- but three new highs in three days, and 5 in 7? That's a mania, due for a whupping.

Meanwhile stocks measured in metals finally broke down out of that long topping formation, and in the teeth of stock strength.

Both the Dow in gold and Dow in silver had formed triangles, and both fell out of those triangles today. Dow in gold fell 3.21% to 11.632 oz (G$240.46 gold dollars, down nearly eight gold dollars). 50 day moving average awaits at 11.40 oz, and the DiG already fell below its 20 DMA (12.05 oz) on Friday.

Dow in silver plunged 40.85 oz (5.11%) today & ended at 758.49 oz, versus Friday's 799.25 oz. DiSoz smashed the 20 DMA (781.91) today, so next confirmation comes at the 50 DMA (724.03). Remember, we want to see the DiSoz fall back under its 16 year downtrend line, now about 600 oz.

Don't miss the portent here: If stocks measured in metals continue to plunge, it means that the rigged & phony Bernanke Rally, floating higher on a sewer full of newly created money, has ended, & that metals will resume outperforming stocks.

Dollar index fell 23.7 basis points (0.3%) to 82.22. Heavy news, for 82.50 support had held it till now. Next logical stopping place is 82.00 support, but the bottom of the gigantic rising wedge lies at about 81 right now, & a trip thitherward can't be ruled out.

Euro rose 0.33% to $1.3186, still rallying. Yen reversed sharply upward and closed barely above its 20 DMA and right at the 50. A break out tomorrow above today's 100.72 high will take it much higher.

Gold gapped up $25 on the US open, from Friday's $1,293.30 close to today's $1,318.30 open. Whoa! Burst through $1,325 resistance & ran $43.10 (3.3%) before stopping at $1,336.40.

Silver gapped up, opening at 1990c. Once silver climbed above 2000 it must have hit thousands of open buy orders. Gained 105 cents (5.4%) for the day and closed at 2049.8c.

Encouraging as this is, put it into perspective. Gold fell off last time (June) at $1,350, and before that in April at $1,550. Sure, today's close takes gold above and outside both its trading channel & the downtrend line from the April plunge, and right at its 50 DMA ($1,335.70). All very constructive, but what next? Can gold clear $1,350, then $1,425? Or is it just sucking us in before one last plunge?

Durned if I know, just like I can't yet be certain that the $1,179.40 low in June was THE low. Clearly the momentum leads upward (12 day rate of change is 6.59% today), but that rate of change has also reached the high where gold fell in May.

Silver today punched above its downtrend line from April, closed above its 20 DMA, but remains below its 50 DMA (2109c). Silver needs to make good those batterings it has suffered since April. That means closing above 2133c (plunge in June) and 2350c.

Now the question of buying once again becomes "Which would you rather hold, dollars or metals?" Given the record, that's a pretty easy one.

I live so far back in the woods we have to order sunshine from Sears & Roebuck. I don't get to any city very much, so imagine my surprise when I flew with my wife to Reno and realized that young women are now wearing their underwear outside! No, not with their other clothes underneath it either. Here's something else I discovered: there's a horrible mirror shortage rampaging across America, 'cause lots of those folks had no mirror to look into before they left the house. If they had, they'd a just slammed the door & stayed home. But what do I know of High Fashion? I am only a natural born fool from Tennessee, with no more sense than to wear my underwear under my outerwear.

On that black day, 22 July 1944 was signed at Bretton Woods, New Hampshire the first step toward losing the peace as the US was winning the war. The General Accord on Tariffs & Trade (GATT), the seed of globalism, was signed and the International Bank for Reconstruction & Development and the International Monetary Fund established. Bretton Woods set up a monetary system that guaranteed American manufacturers would suffer an effective monetary export tariff, effectively raising their prices to overseas buyers while their domestic costs rose. Of the other arrangements I will say nothing, since their stench is well known.

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
22-Jul-13 Price Change % Change
Gold, $/oz 1,336.40 43.10 3.33%
Silver, $/oz 20.50 1.05 5.40%
Gold/Silver Ratio 65.197 -1.304 -1.96%
Silver/Gold Ratio 0.0153 0.0003 2.00%
Platinum 1,447.00 17.30 1.21%
Palladium 749.55 0.90 0.12%
S&P 500 1,695.53 3.44 0.20%
Dow 15,545.55 1.81 0.01%
Dow in GOLD $s 240.46 -7.98 -3.21%
Dow in GOLD oz 11.63 -0.39 -3.21%
Dow in SILVER oz 758.39 -40.85 -5.11%
US Dollar Index 82.22 -0.24 -0.29%
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SPOT GOLD: 1,334.60      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,370.63 1,377.97 1,377.97
1/2 AE 0.50 680.14 703.00 1,406.00
1/4 AE 0.25 340.07 358.17 1,432.69
1/10 AE 0.10 140.03 146.14 1,461.39
Aust. 100 corona 0.98 1,299.02 1,310.02 1,336.48
British sovereign 0.24 316.05 328.05 1,393.58
French 20 franc 0.19 249.17 256.17 1,372.09
Krugerrand 1.00 1,353.28 1,365.28 1,365.28
Maple Leaf 1.00 1,349.60 1,364.60 1,364.60
1/2 Maple Leaf 0.50 767.40 700.67 1,401.33
1/4 Maple Leaf 0.25 340.32 357.01 1,428.02
1/10 Maple Leaf 0.10 141.47 145.47 1,454.71
Mexican 50 peso 1.21 1,600.95 1,612.13 1,337.09
.9999 bar 1.00 1,339.27 1,350.27 1,350.27
SPOT SILVER: 20.49      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 26.00 29.00 37.91
VG+ Peace dollar 0.77 24.00 27.00 35.29
90% silver coin bags 0.72 16,509.35 17,009.35 23.79
US 40% silver 1/2s 0.30 5,852.80 6,002.80 20.35
100 oz .999 bar 100.00 2,039.00 2,119.00 21.19
10 oz .999 bar 10.00 209.90 210.90 21.09
1 oz .999 round 1.00 20.59 21.39 21.39
Am Eagle, 200 oz Min 1.00 21.74 23.29 23.29
SPOT PLATINUM: 1,447.00      
Plat. Platypus 1.00 1,472.00 1,512.00 1,512.00
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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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