The Moneychanger
Daily Commentary
Wednesday, 5 February a.d. 2014 Browse the commentary archive

It's a vexing project to try to compare prices over time, but the conclusion I have to draw is that both silver & gold are hugely undervalued against their historical values. I theorize that the entire money supply -- gold, silver, & money substitutes such as the US dollar -- has been so inflated worldwide by money substitutes, that it has taken all prices higher and severely undervalued silver & gold.

Here's an example from a recent National Geographic. While building the dome on the Cathedral in Florence, Italy, 1420-1436, the city paid the architect, Filippo Brunelleschi, thirty- six gold florins a year, later increased to one hundred.

What's a florin? A gold coin -- "ducat" -- first minted in Italy about 1150 a.d. containing 0.1109 troy ounce of gold (3.5 grams 99-2/3% pure). The denomination was adopted in Venice as the ducat or zecchino ("sequin") and in Florence as the "florin," & in Germany, Hungary, and the Netherlands.

What was it worth? Thirty-six ducats equals 3.9924 troy ounces fine gold. At $1,250 an ounce, Florence was paying Brunelleschi about $4,990.50 yearly. See what I mean? Just doesn't sound like much to pay the man designing & building your republic's greatest monument.

What about his raise to 100 ducats a year? That boosted his pay to 11.09 oz, or, at $1,250 an ounce, $13,862.50/year.

Three conclusions remain: (1) the pathbreaking genius architect Brunelleschi was stupid, (2) worked cheap, or (3) gold is tremendously undervalued today.

Now, today's market:

Stocks tried to rally today but wilted. Dow fell as far as it climbed yesterday & touched the 200 DMA (15,478.57), where it fainted. Closed lower by 5.01 (0.03%) at 15440.23. S&P500 behaved much the same, but is above its 200 DMA (1,709.39). S&P500 gave back 3.56 points (0.2%) to 1,751.64. Somewhere here will come a little corrective wave up. Not much question this downward leg is aligned with the market's major direction (is impulsive) and not merely corrective. That implies that direction has changed and that we've seen the top, but wait for a final verdict.

Dow in gold today fell 0.26% to 12.28 oz (G$253.85 gold dollars) while the Dow in silver really tumbled, 15.6 oz or 1.97%, to 776.87 oz. (Oddly enough, just about a thousand silver dollars, well, $1,004.49 silver dollars in fact).

US Dollar Index acts like a teenage girl at a dance, turning first one way and then another. Do you want to dance, or not? Dollar fell again today, 11 basis points (0.13%) to 81.13. Last four days have established a small downtrend. Has now failed twice to pierce its 200 DMA. Not promising.

Euro has risen enough to fill the gap behind four days ago when it fell. Rose 0.14% to $1.3534. Gravity now controlling its trajectory. Yen rose 0.14% to 98.53 and is closing in on its 200 DMA (100.09). Wants to rally further.

Lookie, lookie! Gold rose $5.60 (0.4%) to close Comex at $1,257.30. Silver vaulted 2%, 38.3 cents, to 1978.5c. Wow.

Friends, gold today punched clean through that downtrend line from April, poked its head up to $1,274.50, but couldn't hang on there. Closed at $1,257.30, just beneath that downtrend line.

However, it has traded out into an even sided triangle and is pushing to break out to the upside. My fastidious mind prevents me from speculating that while the stock market is sinking like an anvil flung out of a C140 cargo plane and the Nice Government Men, whose self-anointed duty has now become to keep stocks rising forever, are struggling to keep stocks floating, the NGM also have a substantial interest in keeping down gold. Whew. That was one whale of a sentence.

Gold is pawing the ground, trying to jump that fence. It's likely to succeed this week.

Silver's breakout through its short term (since January) downtrend line was even more dramatic, and carried it above both the 50 & the 20 day moving averages (1979 cents & 1976c). However, although it reached 2033c at its high, it didn't stay there, and it didn't close above 2050c. Ain't no point in talking much till it does, although I confess I bought some back yonder near the lows, & a little more since then.

Every day makes it more believable that 31 December marked a double bottom with June AND the last low for the 2011-2013 correction.

On 5 February 1937 Comrade President Franklin Roosevelt's plan to pack the US Supreme Court with justices who would approve his fascist makeover of the US failed.

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
5-Feb-14 Price Change % Change
Gold, $/oz 1,257.30 5.60 0.45%
Silver, $/oz 19.79 0.38 1.97%
Gold/Silver Ratio 63.548 -0.966 -1.50%
Silver/Gold Ratio 0.0157 0.0002 1.52%
Platinum 1,377.70 5.90 0.43%
Palladium 706.90 7.00 1.00%
S&P 500 1,751.64 -3.56 -0.20%
Dow 15,440.23 -5.01 -0.03%
Dow in GOLD $s 253.86 -1.22 -0.48%
Dow in GOLD oz 12.28 -0.06 -0.48%
Dow in SILVER oz 780.40 -15.66 -1.97%
US Dollar Index 81.13 -0.11 -0.14%
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: 1,257.80      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,290.50 1,299.31 1,299.31
1/2 AE 0.50 640.97 662.86 1,325.72
1/4 AE 0.25 322.06 337.72 1,350.88
1/10 AE 0.10 131.96 137.73 1,377.29
Aust. 100 corona 0.98 1,226.73 1,235.73 1,260.69
British sovereign 0.24 297.86 309.86 1,316.32
French 20 franc 0.19 236.59 239.63 1,283.51
Krugerrand 1.00 1,274.15 1,284.15 1,284.15
Maple Leaf 1.00 1,272.80 1,287.80 1,287.80
1/2 Maple Leaf 0.50 723.24 660.35 1,320.69
1/4 Maple Leaf 0.25 320.74 336.46 1,345.85
1/10 Maple Leaf 0.10 133.33 137.10 1,371.00
Mexican 50 peso 1.21 1,507.31 1,518.31 1,259.27
.9999 bar 1.00 1,262.20 1,276.80 1,276.80
SPOT SILVER: 19.83      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 23.00 25.00 32.68
VG+ Peace dollar 0.77 20.00 22.00 28.76
90% silver coin bags 0.72 14,854.13 15,104.13 21.12
US 40% silver 1/2s 0.30 5,656.63 5,806.63 19.68
100 oz .999 bar 100.00 2,482.50 2,027.50 20.28
10 oz .999 bar 10.00 198.25 204.25 20.43
1 oz .999 round 1.00 19.83 20.38 20.38
Am Eagle, 200 oz Min 1.00 21.08 22.53 22.53
SPOT PLATINUM: 1,377.70      
Plat. Platypus 1.00 1,402.70 1,442.70 1,442.70
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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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