The Moneychanger
Daily Commentary
Monday, 2 December a.d. 2013 Browse the commentary archive

I read something today that freezes my blood, in Fred Hickey's Hi Tech letter. "The Fed has now accumulated $2.2 trillion of treasury securities and more than $1.4 trillion of mortgage backed securities, and its balance sheet is nearly $3.9 trillion, FIVE times the level in late 2008, when it began QE1. . . . The Fed now owns nearly half of all treasuries maturing between ten and fifteen years."

So the Fed has engineered a bubble in US treasuries, lowering interest rates nearly to zero so it made no sense for investors to buy anything but "risk-free" treasuries, except it turns out the Fed owns a vast amount of those treasuries. When interest rates rise, their value declines.

But that's peanuts and peanut shells, not the big issue. Bernanke has backed the Fed into a very narrow corner. They can't sell without precipitating a colossal deflation. But even if they could sell, who would buy all those treasuries, especially in a falling market?

The answer comes back: "Nobody." The bond bubble will deflate very quickly -- think "Pin-prick." And once those interest rates start rising, banks will begin pulling those reserves out of the Federal Reserves' hands, where they have been sequestered and "sterilized," say, Oh, roughly $2.5 trillion. And that $2.5 trillion, when the banks loan it into the money supply, will increase, Oh, say, ten-fold.

Blood in the streets inflation does not begin to describe the catastrophe Bernanke has made possible. Better pray it doesn't come.

Okay, I just report this stuff. Friday the Dow made a new intraday high for the move (16,174.51) yet closed the day lower. Today it dropped again & closed lower again. That describes a completed key reversal. The S&P500 completed the selfsame pattern. That foretells lower prices, immediately.

All stock indices closed lower today. Dow dropped 77.64 (-0.48%) at 16,008.77. S&P stumbled 4.91 (-0.27%) at 1,800.90. Breaking those round numbers 16,000 & 1,800 tomorrow will panic the lemmings.

But what do I know? I'm just a natural born fool from Tennessee, and I climb trees in my bare feet to get a better grip on the trunk.

Dow in Gold kept on rising today since gold fell more than stocks. Ended the day at 13.10 oz, up 1.92% (G$270.80). Between the June peak at 12.514 (G$258.67) and 15.722 oz (G$325) lies a swamp of resistance. Stocks will have to begin falling faster than gold to turn the DiG around.

Dow in Silver hit 82994 oz, up 3.19%. Both the DiS & DiG are severely overbought. Next big move is will be gravity-directed.

Bad economic stats in Europe today sent the euro down, which, being translated, means "sent the dollar up." Dollar might also have benefitted from stocks' trouble. Anyway, the dollar gained 27 basis points (0.34%) to 80.93. This brought the dollar back from the brink of the well, and it closed over its 20 DMA (80.88), but barely. Nearly reached the upper boundary trading channel boundary. It must break through that merely to have the chance to rally, and could just as easily break down. Tomorrow may tell.

Yen extended its Niagara begun in November. Lost another 0.5% today to 97.15 cents/Y100. Becoming right oversold, but how can you reliably apply charts to currencies, which are routinely manipulated by central banks? Only as a general guideline, & watching to see if the central banks are losing control.

That brings us to silver & gold, storm-tossed & tumbled today. Gold dove $28.30 (2.3%) and landed with a thud at $1,222.30. In the aftermarket it traded as low as $1,218.60, but since has climbed to $1,221. Silver slid 74.8 cents (3.7%) to close Comex at 1923.3 cents, but in the aftermarket kept sliding to 1907.5. Edged back up to 1915c.

Both silver & gold keep bouncing along the bottom of their Bollinger bands. Those show the upper & lower limits of "normal" price movements, based on the standard deviation of prices over the last 20 days. Idea is that about 95% of the expected readings will fall within that band, so when they fall outside that band, an extreme has been reached & suggests a reversal. For instance, last June gold & silver punched through their lower BB on the very day of the low. Both silver & gold are oversold, but "oversold" can persist quite some time.

Sometime soon here silver & gold ought to bottom. Today might mark the first day of a waterfall lasting several days, or it cold turn around immediately, if only for a short bounce. Trying to call a low in a selling mania is like trying to call a top in a buying mania. Neither occupation promises a secure future. But sellers keep hitting silver & gold with less and less effect. Those holders who could be shaken out have mostly been shaken out. At some point any market runs out of sellers.

That point is fast approaching.

Remember, you have Important People on gold & silver's side: the Federal Reserve and all the rest of the world's central banks. Just wait for reality to catch up with their printing presses.

On 2 December Napoleon Bonaparte was crowned Emperor of France in Paris. It had taken the Revolution fourteen years to go from peace with a king to mass executions, hyperinflation, and war on every front to an emperor with war on every front. Great swap!

Then on 2 December 1852 Louis Napoleon Bonapart, the first Napoleon's nephew declared the second French empire. He had been elected in France's first ever popular vote in 1848, and staged a coup d'├ętat in 1851, then named himself emperor. It took another 18 years for the French to get rid of this poseur. After him came the Third French Republic, which lasted until the Germans occupied France I 1940. The Fourth French Republic came on in 1946 and lasted until 1958. The war with Algeria brought that down and in 1958 under Charles de Gaulle the French established the Fifth Republic.

They might have done better just to keep their king in 1790. He wasn't much, but he also pretty much kept his mouth shut and stayed out of trouble.

France is a great country, but like the US, crippled by a lousy government.

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
2-Dec-13 Price Change % Change
Gold, $/oz 1,222.30 -28.30 -2.26%
Silver, $/oz 19.23 -0.75 -3.74%
Gold/Silver Ratio 63.552 0.963 1.54%
Silver/Gold Ratio 0.0157 -0.0002 -1.51%
Platinum 1,345.90 -22.00 -1.61%
Palladium 712.40 -5.60 -0.78%
S&P 500 1,800.90 -4.91 -0.27%
Dow 16,008.77 -77.64 -0.48%
Dow in GOLD $s 270.74 4.84 1.82%
Dow in GOLD oz 13.10 0.23 1.82%
Dow in SILVER oz 832.36 27.27 3.39%
US Dollar Index 80.89 0.34 0.42%
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: 1,218.60      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,255.16 1,261.25 1,261.25
1/2 AE 0.50 620.98 642.81 1,285.62
1/4 AE 0.25 324.19 327.50 1,310.00
1/10 AE 0.10 129.07 134.05 1,340.46
Aust. 100 corona 0.98 1,184.92 1,194.92 1,219.05
British sovereign 0.24 288.58 300.58 1,276.89
French 20 franc 0.19 229.22 232.31 1,244.31
Krugerrand 1.00 1,236.88 1,247.88 1,247.88
Maple Leaf 1.00 1,233.60 1,248.60 1,248.60
1/2 Maple Leaf 0.50 700.70 639.77 1,279.53
1/4 Maple Leaf 0.25 310.74 325.98 1,303.90
1/10 Maple Leaf 0.10 129.17 132.83 1,328.27
Mexican 50 peso 1.21 1,457.39 1,472.27 1,221.09
.9999 bar 1.00 1,222.87 1,234.60 1,234.60
SPOT SILVER: 19.08      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 25.00 26.50 34.64
VG+ Peace dollar 0.77 22.00 24.25 31.70
90% silver coin bags 0.72 14,425.13 14,675.13 20.52
US 40% silver 1/2s 0.30 5,435.38 5,585.38 18.93
100 oz .999 bar 100.00 1,897.50 1,957.50 19.58
10 oz .999 bar 10.00 195.75 196.75 19.68
1 oz .999 round 1.00 19.18 19.68 19.68
Am Eagle, 200 oz Min 1.00 20.83 22.08 22.08
SPOT PLATINUM: 1,345.90      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Platypus 1.00 1,370.90 1,410.90 1,410.90
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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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