The Moneychanger
Daily Commentary
Wednesday, 26 March a.d. 2014 Browse the commentary archive

A reader wrote asking, "Many people are predicting a depression which will take down the price of almost everything. You feel that real estate & other tangible assets will also depreciate. Why don't you feel that precious metals and other commodities won't also take a big hit?"

Because silver & gold are not commodities. Silver & gold prices are driven by MONETARY not economic demand as commodities are (copper, lumber, tin). They rise when inflation is eating out the dollar's value. So regardless of economic conditions, inflation will drive silver & gold higher, because people seeing their dollars lose value will seek refuge in silver & gold. Everything of value will NOT tank in the future, only those items whose value depends on economic demand, and that doesn't include silver & gold.

It doesn't overstate much to say we are already in a depression, & that will over time lower most assets' value. However, the Fed & yankee government have shown that they will respond to every crisis by printing more money, so an inflationary depression will result. The underlying economic condition will be a depression (shrinking economic activity) while the monetary condition will be inflation resulting in rising prices. Although asset prices may rise, they will in fact be losing value or purchasing power, unless they rise faster than the dollar falls.

Purchasing power is all that counts. You can see this in the Dow yesterday at 16,367.88, which appears much higher than its 2000 peak at 11,722. However, corrected for inflation (even using the government's understated & jimmied numbers), that 11,722 in 2000 equals only 15,982 today. Turn that around: 2014's 16,367.88 would equal only 12,005 in 2000. The Dow has not gained (16,367.88/11,722 = 40%, but 12,005/11,722 = 2.4% in purchasing power. Adjusted for real inflation loss, the Dow is lower now than it was in 2000.

If I could teach y'all just one thing, it would be FORGET NOMINAL GAINS & LOOK ONLY AT PURCHASING POWER GAIN OR LOSS.

Y'all remember this, too: inflation does not stimulate the economy, any more than illegal counterfeiting would. Inflation always creates booms that go bust, and disrupts the economy in thousands of other ways. Inflation benefits only those near the source of the inflation, i.e., Wall Street, & the bureaucrats & politicians who produce inflation while it robs all others.

Now that I've hawked that bone out of my throat, let's look at markets.

Stocks see-sawed back the other way today, losing more than they gained yesterday. Dow got near its upper downtrend line and looked like Dracula smelling garlic -- wilted. S&P500 bounced from top of its even-sided triangle to the bottom, & closed there for good measure. Dow lost 98.89 (0.6%) & closed 16,268.99. S&P500 coughed up 13.06 (0.7%) to roost at 1,852.56. Both of them perched below their 20 day moving averages. I have no opinion, triangles can surprise, but all this carries with it the scent of weakness.

Silver is supposed to be strong relative to gold when stocks are strong & vice versa, but it hasn't been following that script lately. Dow in gold dropped slightly today, down 0.15% to 12.46 oz (G$257.57 gold dollars). It stands barely above the 50 DMA (12.39 oz or G$256.12), which might be a splendid place to turn down. But no indication of that yet. I'm anticipating.

Dow in silver rose 0.63% to 824.37 oz (S$1,065.85 silver dollars). Unless stocks break down soon, it's liable to return to that December high at 853.1 oz. It has already fulfilled a 75% correction of the Dec - Feb drop.

Last five days the US dollar index has established a downtrend with lower lows and lower highs. Now it's sort of bunching up, with a small range today, 80.29 - 80.06. Rose a less-than-gigantic three basis points today to 80.11. This sort of "stability" smacks of the strong hand of Nice Government Men.

Euro back appears to have been broken. Closed again today beneath its 20 DMA, & lost another 0.3% to end at $1.3785. This comes after a breakout it could not cash in on. Yen rose 0.24% but that is sound and fury, signifying nothing, even with a close at 98.01 cents/Y100. Gold in euros and in British pounds looks like a buy here.

Today gold fell $8.02 (0.6%) to close Comex at $1,303.40. Silver fell 19.6 cents (1%) to 1975.9 cents.

Today's action pretty well fulfills my targets for the correction, i.e., $1,300 and 1950c. Lows came at $1,299.30 and 1968c. Y'all can stand around waiting for perfection, but I'm not. Both metals fell off about noon, but without any more drama than a short waterfall. Little V-bottoms near day's end might mark the lows. Believe it or not I had a customer today who bought 60 cents off the day's lows. Good shooting!

What's the downside risk? With gold, possible drop to $1,287. Silver could -- but might not, drop as far as 1950 - 1945c. Not much from here, unless some surprise ariseth.

Time to buy silver & gold.

On 26 March 1937 spinach growers in Crystal City, Texas erected a statue of Popeye.

On 26 March 1793 a pro-royalist uprising in the Vendee region of France broke out, and the Revolutionaries showed their true colors -- bloody -- by murdering tens of thousands. As I remember, their terror included loading up river barges with folks suspected of lacking revolutionary fervor, towing them to mid-River, and sinking them. In all its murdering fury, the Revolution spared neither woman nor child, but exterminated all.

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
26-Mar-14 Price Change % Change
Gold, $/oz 1,303.40 -8.02 -0.61%
Silver, $/oz 19.76 -0.20 -0.98%
Gold/Silver Ratio 65.965 0.246 0.37%
Silver/Gold Ratio 0.0152 -0.0001 -0.37%
Platinum 1,406.50 -14.40 -1.01%
Palladium 781.15 -8.25 -1.05%
S&P 500 1,852.56 -13.06 -0.70%
Dow 16,268.99 -98.89 -0.60%
Dow in GOLD $s 258.02 0.02 0.01%
Dow in GOLD oz 12.48 0.00 0.01%
Dow in SILVER oz 823.37 3.13 0.38%
US Dollar Index 80.11 0.03 0.04%
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: 1,305.15      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,340.39 1,350.83 1,350.83
1/2 AE 0.50 665.12 687.49 1,374.98
1/4 AE 0.25 332.56 350.27 1,401.08
1/10 AE 0.10 136.94 142.91 1,429.14
Aust. 100 corona 0.98 1,272.91 1,281.91 1,307.81
British sovereign 0.24 309.54 314.29 1,335.12
French 20 franc 0.19 245.50 248.52 1,331.13
Krugerrand 1.00 1,319.51 1,329.51 1,329.51
Maple Leaf 1.00 1,320.15 1,335.15 1,335.15
1/2 Maple Leaf 0.50 750.46 685.20 1,370.41
1/4 Maple Leaf 0.25 332.81 349.13 1,396.51
1/10 Maple Leaf 0.10 138.35 142.26 1,422.61
Mexican 50 peso 1.21 1,564.05 1,575.05 1,306.33
.9999 bar 1.00 1,309.72 1,324.15 1,324.15
SPOT SILVER: 19.80      
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 14,943.50 15,193.50 21.25
US 40% silver 1/2s 0.30 5,649.25 5,799.25 19.66
100 oz .999 bar 100.00 1,985.00 2,035.00 20.35
10 oz .999 bar 10.00 198.50 203.50 20.35
1 oz .999 round 1.00 19.90 20.40 20.40
Am Eagle, 200 oz Min 1.00 21.30 22.50 22.50
SPOT PLATINUM: 1,406.50      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Platypus 1.00 1,421.50 1,438.50 1,438.50
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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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