The Moneychanger
Daily Commentary
Wednesday, 12 March a.d. 2014 Browse the commentary archive

Have y'all ever thought about this? All portfolio & investing theory & lots of economics is based on the "efficient or rational markets" assumption, that is, that markets behave rationally & efficiently because investors behave rationally. All financial media reporting presupposes that: "Investors today turned away from copper based on studies that show prolonged exposure to copper can cause warts."

In fact, how many "rational" people do you know? How many do you know who even rationally pursue their own best interest? I know exactly one, and he stands out because he's the only one nearly rational & he ain't too rational around the edges. Most of mankind most of the time looks like a man hitting himself in the head with a ball peen hammer. He doesn't know WHY, he just can't stop.

So the financial media look at two stories coincident in time -- copper drops, yuan drops -- and act as if investors worldwide suddenly shucked copper because the yuan dropped. I reckon this may not be rational behavior, but the "post hoc, ergo propter hoc" fallacy, namely, "it happened after this so it happened because of this." Suppose a woman gets pregnant every year during winter's coldest time. Does that prove cold weather causes pregnancy?

Y'all, I'm a fool, but I'm not being silly. Markets are so huge that nobody can pinpoint a single cause for their movements. And most investors act more on emotion and tips than on reason; that's why so many lose money. That's why people buy the Japanese yen & drive it up the same day the Bank of Japan announces it will cheapen the yen further. That's why markets sway & swoon when the FOMC meets & mumbles trite and pompous platitudes it hopes will come true. Mercy, that's why people still vote Democratic & Republican after all the proof that these people mean to destroy us!

Does that mean we all become obscurantists & say markets are unknowable? Nope, it means we approach them humbly as mysteries with unknown edges. After identifying long term trends, we invest in those so every twist & turn of adolescent fear & greed doesn't tie us in knots & pick our pockets.

More, we pay attention to what markets are saying, even when we're not sure exactly what it imports. Copper, for instance, often tops before stock markets, and often predicts future economic activity, higher or lower.

Copper hath thrice hit this $3.00 boundary since it peaked early in 2011, itself a warning other commodities would peak later that year. Usually when a market knocks on a door three times, it breaks through at the last knock, as copper appears to be doing. It rings a loud klaxon warning stock investors.

Nothing deterred the rational folks swarming on Nasdaq & Nasdaq 100 today, but the Dow fell a little 11.49 (0.07%) to 16,339.76. S&P500 blew hot & cold out of both sides of its mouth by rising 0.52 or 0.03% to 1,868.15. Both are hovering above their 20 DMA, tripwire of a decline.

Today's performance in the Dow in Gold & Dow in Silver shredded all notions that they might rally further. DiG plunged 1.6% to 11.92 oz (G$246.40 gold dollars) and dunked the DiG's below the 200 DMA (12.02). Other indicators are turning down.

Dow in silver dropped 2.3% to 765.06 oz (S$989.17 silver dollars) and draws close to the 20 DMA (761.94 oz). Looks like the end of the upward correction.

US Dollar Index lost 18 basis points or 0.23% to 79.58. It remains within the nose cone of a falling wedge, and thus the possibility of an upward reversal, but I have to ask, What is the market telling us? That it doesn't like dollars.

Across the icy Atlantic, the euro rose 0.34% to $1.3908, a new high for the move. That close above resistance suggests the euro will climb to $1.4250, or higher. Yen felt peppy today, too, rising 0.23% to 97.38 c/Y100. Still below its 20 DMA, still in a downtrend.

All fiat currencies issued by central banks are headed for history's dumpster. Right there among the mashed grapefruit rinds and rotting potato peels and fragrant spoiled hamburger and used Kleenexes.

Gold did it today, blasting up $23.80 (1.77%) to $1,370.30. Silver beat gold, rising 2.62% (54.4 cents) to 2132.8c.

Listen, this is it. Gold kept bumping up against that $1,355 ceiling, & after the third knock busted through. Stop waiting: BUY. This will run at least to $1,435 before it takes any weighty break.

Gold today surged enough to hit its top Bollinger Band, but notice that it has been tickling that line & crossing it all through the February rise, strong, tugging at the reins, wanting to run.

Silver's move was larger percentage-wise, but less dramatic otherwise. Even with today's close, barely short of the 20 DMA (2043c) silver remains in a short term downtrend (lower highs and lower lows). I suspect it turned up day before yesterday with a 2061c intraday low, and now it has again o'erleapt its 200 DMA (2098c).

First target for silver is now the February 2218c high, then October's 2309c, but my eyes are on August's high at 2512c. Silver like gold has traded above its post-April 2013 downtrend line, so the rally is on. However, after the blood and grief of a more than two year downward correction, silver and gold must conquer those earlier highs to convince the skeptics. "Bull markets climb a wall of worry."

As with gold, now is the time to buy silver. Remember that often, as precious metals rallies progress, silver begins to outperform gold. We will probably witness that on this occasion, too, considering that we started from a very high gold/silver ratio (over 64).

Some days you just can't win. About 3 years ago we found a Jersey bull calf, Fry, descended from a great grass-fed New Zealand bull. He's never been any trouble and has faithfully done his job. This morning he was just fine when my son Wright fed the cows some hay and alfalfa, but when another son, Justin, went by after noon, he was four-hooves-up in the pasture, wildly bloated.

We even went out there to make sure it wasn't some improbable cow prank, but he was dead. Stone cold dead.

A veterinarian friend in another state helped put together what must have happened. Wright put out alfalfa for him, and as the biggest animal Fry must have pushed the cows away and gorged on alfalfa. But alfalfa & clover are legumes, & can cause frothy bloat in cows, tiny bubbles in the cow's stomach that won't burst, so that the animal suddenly bloats and dies.

Even if someone had warned me about it -- and we knew about bloat from clover -- I wouldn't have thought that was enough alfalfa to hurt him. What you don't know CAN kill you, or your animals.

"The Lord gave, the Lord hath taken away. Blessed be the name of the Lord."

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-Mar-14 Price Change % Change
Gold, $/oz 1,370.30 23.80 1.77%
Silver, $/oz 21.33 0.54 2.62%
Gold/Silver Ratio 64.249 -0.537 -0.83%
Silver/Gold Ratio 0.0156 0.0001 0.84%
Platinum 1,475.70 11.70 0.80%
Palladium 776.95 6.65 0.86%
S&P 500 1,868.15 0.52 0.03%
Dow 16,339.76 -11.49 -0.07%
Dow in GOLD $s 246.50 -4.53 -1.81%
Dow in GOLD oz 11.92 -0.22 -1.81%
Dow in SILVER oz 766.12 -20.61 -2.62%
US Dollar Index 79.58 -0.18 -0.23%
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SPOT GOLD: 1,367.70      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,400.52 1,415.57 1,415.57
1/2 AE 0.50 697.02 720.44 1,440.87
1/4 AE 0.25 348.51 367.06 1,468.23
1/10 AE 0.10 143.50 149.76 1,497.63
Aust. 100 corona 0.98 1,333.92 1,342.92 1,370.04
British sovereign 0.24 324.37 329.12 1,398.14
French 20 franc 0.19 257.26 260.20 1,393.68
Krugerrand 1.00 1,382.74 1,392.74 1,392.74
Maple Leaf 1.00 1,382.70 1,397.70 1,397.70
1/2 Maple Leaf 0.50 786.43 718.04 1,436.09
1/4 Maple Leaf 0.25 348.76 365.86 1,463.44
1/10 Maple Leaf 0.10 144.98 149.08 1,490.79
Mexican 50 peso 1.21 1,640.65 1,651.65 1,369.87
.9999 bar 1.00 1,372.49 1,386.70 1,386.70
SPOT SILVER: 21.31      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 26.25 28.25 36.93
VG+ Peace dollar 0.77 22.25 23.75 31.05
90% silver coin bags 0.72 15,808.65 16,058.65 22.46
US 40% silver 1/2s 0.30 6,094.70 6,244.70 21.17
100 oz .999 bar 100.00 2,136.00 2,186.00 21.86
10 oz .999 bar 10.00 213.60 218.60 21.86
1 oz .999 round 1.00 21.41 21.91 21.91
Am Eagle, 200 oz Min 1.00 22.81 24.01 24.01
SPOT PLATINUM: 1,475.70      
Plat. Platypus 1.00 1,490.70 1,507.70 1,507.70
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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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