The Moneychanger
Daily Commentary
Wednesday, 7 May a.d. 2014 Browse the commentary archive

In yesterday's commentary I made a very bad misstatement. I wrote "Swap silver for gold" but clearly I meant the opposite, swap gold for silver. At 66 ounces of silver to buy one ounce of gold, the ratio is relatively HIGH. When the ratio is HIGH (silver is cheap in gold) we buy the cheaper metal silver with the dearer metal, gold.

Blame it on the springtime. Blame it on my proofreading. Blame it on me. Please forgive me. But swap GOLD for silver.

In Greek tragedy they had a cheap trick to get the actors out of an impasse in the script: the deus ex machina. When the characters are painted into a corner, a crane backstage ("machina") would lower down a character ("deus", a god) who with a wave of his hand would overcome all difficulties. So deus ex machina or god from the machine is not great writing, just a contrived device to overcome a poorly planned plot.

In the same way, I could every day explain market movements by pointing to the Nice Government Men. More, a matter of notorious fact and law & government policy the US Treasury intervenes in markets through the President's Working Group on Financial Markets (Plunge Protection Team, primarily for stock markets) and in the silver & gold markets (Exchange Stabilization Fund, Gold Reserve Act of 1934, etc.). Thus it is not conjecture but hard fact that your yankee government intervenes in markets.

But not every day. More, because markets are so huge, they can only manipulate at the margin, and never successfully long term against a primary trend, witness their "suppression" from $4.01 silver & $252 told to $20 & $1,290 today. If that "success" ain't the hallmark of a government job, I don't know what is.

Yet although they don't manipulate every market every day, sometimes they do, especially when they want to skew public perception. To convict of a crime, you must show that the criminal had Motive, Means, & Opportunity.

Do the NGM have Motive lately to manipulate gold? Well, with a war brewing & the dollar tanking & $3+ trillion of newly printed money waiting to hit consumer prices, I'd say so. Nor do they want folks to see stocks tanking and gold rising. Even as great a nincompoop as Alan Greenspan knew that the public views gold's price as the barometer of US dollar's health.

Do they have the means to Manipulate? Go visit www.GATA.org if you need proof, but they've been intervening in markets for over 80 years that I know of. And the opportunity arises whenever they take it up.

All this is my sideways explanation of why gold & silver MAY have dropped today: the NGM simply couldn't stand to leave gold alone while the dollar is tanking & gold offers a safe haven from potential war. (I do not, by the way, put much credence into "safe haven premiums" on gold. They vanish as quickly as they appear.) On the other hand, gold & silver may be signaling some as yet unresolved weakness, some lingering doubt over both metals that requires time and lower prices to resolve.

By the way, the NGM let down a DEA magna et crassa ex machina today when Mother Janet Yellen spoke to congress. This assuaged all those panicky stock investors & pumped up the stock market, & apparently bopped gold on the noggin. Looking deeper, where she said anything in the blizzard of persiflage, she said they would keep interest rates low for a long time. That of course is GOOD for gold, because it lowers the opportunity cost suffered by receiving no interest while you hold gold. Never mind.

To the details:

Dow gained back 117.52 (0.72%) to 16,518.54 after losing 129.53 yesterday. S&P500 added 10.49 (0.46%) to 1,878.21, after losing 6.94 yesterday.

That seems awfully volatile and indecisive. Outcome will probably spikes to new highs soon, but stocks might also suddenly tank. Odds are against vastly higher prices.

Dow in gold is simply sawing up & down sideways without any resolution. Rose 2.19% today to 12.82 oz (G$265.01 gold dollars). Dow in Silver jumped up 1.96% to 854.02 oz (S$1,104.19 silver dollars). Bounced up off the 20 DMA. Should rise further.

US dollar index rose 11 basis points, a bound that would make any dead cat proud, to 79.26. The euro backed up 0.11% to $1.3913, but solidly broke out yesterday for a trip to $1.4000 or higher. Yen fell 0.23% to 98.54 cents/100 yen. Dollars stands on parlous slick ground, slicker than otter snot.

Gold lost $19.70 (1.51%) to $1,288.60 while silver lost 30 cents (1.53%) to close Comex at 1929.8c.

Before I say anything else, I will face the riddle in silver & gold. After those dramatically strong reversals, they ought to have proceeded higher, but today they didn't. That might mean lower prices ahead, some lurking spike, but I am going to interpret by the other fork. Until we see lows below April's lows, I'm going to assume both are headed higher.

Should you draw a trend line from the March $1,392.60 high through the April $1,331.40 high, you'd also catch the other April high at $1,306.50. Last Friday's rally burst through that downtrend line (a "breakout"), carried to the 50 DMA, then backed off. Today carried gold below its 20 & 200 DMAs, but stopped short of that downtrend line -- could be classed as that "final kiss good-bye" after a breakout. Must hold $1,285 or gainsay that call.

Don't put that ruler up! Draw another trendline across recent silver tops. Start with February's 2218c, ignore March's 21.795, but connect to April's 2040 and 1995. Over THAT downtrend line silver broke out on Friday, and now has traded back to it. Must hold 1930c or contradict.

In the immortal words of the great Porky Pig, "T-T-T-That's all, folks!"

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
7-May-14 Price Change % Change
Gold, $/oz 1,288.60 -19.70 -1.51%
Silver, $/oz 19.30 -0.30 -1.53%
Gold/Silver Ratio 66.774 0.017 0.03%
Silver/Gold Ratio 0.0150 -0.0000 -0.03%
Platinum 1,433.80 -23.30 -1.60%
Palladium 796.85 -21.70 -2.65%
S&P 500 1,878.21 10.49 0.56%
Dow 16,518.54 117.52 0.72%
Dow in GOLD $s 264.99 5.85 2.26%
Dow in GOLD oz 12.82 0.28 2.26%
Dow in SILVER oz 855.97 19.10 2.28%
US Dollar Index 79.26 0.11 0.14%
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SPOT GOLD: 1,289.60      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,324.42 1,334.74 1,334.74
1/2 AE 0.50 657.19 679.30 1,358.59
1/4 AE 0.25 328.59 346.10 1,384.39
1/10 AE 0.10 135.30 141.21 1,412.11
Aust. 100 corona 0.98 1,257.75 1,266.75 1,292.33
British sovereign 0.24 305.85 310.60 1,319.45
French 20 franc 0.19 242.57 245.62 1,315.58
Krugerrand 1.00 1,305.08 1,315.08 1,315.08
Maple Leaf 1.00 1,304.60 1,319.60 1,319.60
1/2 Maple Leaf 0.50 741.52 677.04 1,354.08
1/4 Maple Leaf 0.25 328.85 344.97 1,379.87
1/10 Maple Leaf 0.10 136.70 140.57 1,405.66
Mexican 50 peso 1.21 1,546.97 1,557.97 1,292.17
.9999 bar 1.00 1,294.11 1,308.60 1,308.60
SPOT SILVER: 19.28      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 26.50 28.50 37.25
VG+ Peace dollar 0.77 22.50 23.75 31.05
90% silver coin bags 0.72 14,818.38 15,068.38 21.07
US 40% silver 1/2s 0.30 5,494.38 5,644.38 19.13
100 oz .999 bar 100.00 1,932.50 1,982.50 19.83
10 oz .999 bar 10.00 193.25 198.25 19.83
1 oz .999 round 1.00 19.38 19.88 19.88
Am Eagle, 200 oz Min 1.00 21.13 21.53 21.53
SPOT PLATINUM: 1,433.80      
PLATINUM Fine Tr.Oz. BID ASK $/oz
Plat. Platypus 1.00 1,448.80 1,465.80 1,465.80
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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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