The Moneychanger
Daily Commentary
Thursday, 12 December a.d. 2013 Browse the commentary archive

A reader describing himself as a "natural born fool from RI" asked me what in the world the US dollar index is all about & what in the world it means & why should he care. Here's why:

The US Dollar Index is an weighted index of the dollar's value against currencies of its most significant trading partners.   The basket of currencies contains the Euro, Japanese yen, British Pound, Canadian Dollar, Swiss Franc, & Swedish Kronor (why that, I don't know).  Here are the weights:

Euro, 57.6%

Yen, 13.6%

Pound sterling, 11.9%

Canadian dollar, 9.1%

Swedish Krona, 4.2%

Swiss franc, 3.6%.

The US dollar index takes into account not only changes in the dollar's value against one currency, but several, and so ought to give a fuller picture of the dollar's value.  Comparing the US dollar to the Zimbabwean dollar would give one the idea the dollar was very healthy, but a chart of the US$ in euros would give quite another idea.

The US Dollar Index offers a composite view of the dollar's value against its major trading partners.  It has traded as high as $164.22 in February 1985 and as low as 70.70 on 16 March 2008.

The US Dollar index double peaked in 2000 & 2001 at 121, and has been in a bear market (declining) ever since. Range since 2003 -2013 has been 92 to 70.70.    Range late 2009 to now has been 72.70 to 88.70.  Range last two years has been 78 - 85.  A drop below the support line now at about 80 would send it falling much further.

Since most of y'all live & trade with dollars every day, its change in value is fraught with significant effect upon your life. Also, the main competitors with the US dollar are silver & gold. Distrust in the dollar sends money fleeing into silver & gold, generally but not every single day. Thus watching the US dollar index clues us about gold & silver's future.


Woe is everybody. Lots of money went to money heaven today.

Stocks, for example, lost big again. Dow dropped 104.10 (0.66%) to 15,739.43. S&P500 followed right along, losing 6.72 (0.38%) to 1,775.5. Lo, both draweth nigh their 50 DMAs (15,640 & (1,760) as the decline begun on November's last day continues. Dow has already fallen back within its old trading channel, & the S&P isn't far from it, about where its 50 DMA stands (1,760).

Sharp drops in silver & gold today sent the Dow in Gold & Dow in Silver back up above their 20 DMAs. This disturbeth not the larger downtrend. DiG gained 1.56% to end at 12.85 oz (G$265.63 gold dollars). DiS rose 3.5% to 808.81 oz. Be calm -- they've turned down & in markets, unlike gravity, nothing rises or falls in a straight line.

Well, the US Dollar Index managed to rise today, up 31.4 basis points (0.4%) to 80.196, drawing away from that dangerous 80 support lie. This still ain't stellar, with the dollar index below its 50 DMA (80.38) & 20 DMA (80.61). Very hard to parse where the dollar is headed, but it's not really flashing strength. Indecision, maybe, but not strength.

Euro lost 0.25% to $1.3752 on the US dollar's "strength." It had almost reached the $1.3800 line.

Yen fell again today, down 0.92% to 96.72 cents/Y100, and to a new low for the move. Rotten outlook if it can't turn around from here.

I told y'all I was still braced for bad action in silver & gold, & today it hit. Things were rocking along fine until about 4:30 a.m. EST, late night even in London, when "somebody" slammed gold at $1,254. Whatever they hit it with, it gapped down to $1,245, stayed around there until New York opened, then from 8:30 to 10 declined and about 11:1.m. gapped down again to $1,225.

Gold closed Comex down $32.50 (2.6%) at $1,226.00 while silver ended down 89.6 cents (4.4%) at 1940.2c.

Whew. What can you say about that?

A lot. First, silver stopped about where it made its low on 9 December, one day after what appeared to be a bottom. Next, it remains in an uptrend. It's true. But the Rate of Change turned negative with today's fall.

Gold was also driven to its 9 December low, but remains above the support line. I don't know any more than y'all do what they will do tomorrow. After today's drop, odds say they will drop further, but we'll wait and let the market tell us.

Be calm. A year from now y'all will look like investing geniuses after silver & gold have rallied.

On 12 December 1791 the Bank of the United States opened, the first attempt of the money interest to foist a central bank off on America. In spite of Hamilton's help, it didn't work. Bank was so thinly capitalized it hired two men to do nothing but put bags of silver coin in a dumb waiter in the basement, run them up to the lobby, roll them on a dolly across the lobby to impress the rubes, then carry them downstairs for another round trip. On 12 December 1862 the Union lost its first ship to an electrically detonated "torpedo" (now styled "mine") in the Yazoo River in Mississippi. The ship was the USS Cairo, and it has been raised and rebuilt for display in Vicksburg. Fascinating trip for children and adults. It was the first ship in history sunk by such a mine, a tribute to Southern ingenuity.

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
12-Dec-13 Price Change % Change
Gold, $/oz 1,262.40 -32.50 -2.51%
Silver, $/oz 19.40 -0.90 -4.41%
Gold/Silver Ratio 65.065 1.271 1.99%
Silver/Gold Ratio 0.0154 -0.0003 -1.95%
Platinum 1,363.50 -20.80 -1.50%
Palladium 719.80 -18.30 -2.48%
S&P 500 1,775.50 -6.72 -0.38%
Dow 15,739.43 -104.10 -0.66%
Dow in GOLD $s 257.73 4.81 1.90%
Dow in GOLD oz 12.47 0.23 1.90%
Dow in SILVER oz 811.23 30.68 3.93%
US Dollar Index 80.20 0.31 0.39%
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Aust. 100 corona 0.98 1,196.20 1,206.20 1,230.57
British sovereign 0.24 290.45 302.45 1,284.84
French 20 franc 0.19 230.70 233.79 1,252.21
Krugerrand 1.00 1,246.12 1,257.12 1,257.12
Maple Leaf 1.00 1,241.50 1,256.50 1,256.50
1/2 Maple Leaf 0.50 705.24 643.91 1,287.83
1/4 Maple Leaf 0.25 312.76 328.09 1,312.36
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SILVER Fine Tr.Oz. BID ASK $/oz
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VG+ Peace dollar 0.77 22.00 24.25 31.70
90% silver coin bags 0.72 14,550.25 14,800.25 20.70
US 40% silver 1/2s 0.30 5,546.00 5,696.00 19.31
100 oz .999 bar 100.00 1,935.00 1,995.00 19.95
10 oz .999 bar 10.00 199.50 200.50 20.05
1 oz .999 round 1.00 19.55 20.05 20.05
Am Eagle, 200 oz Min 1.00 21.20 22.45 22.45
SPOT PLATINUM: 1,363.50      
Plat. Platypus 1.00 1,388.50 1,428.50 1,428.50
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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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