The Moneychanger
Daily Commentary
Tuesday, 20 May a.d. 2014 Browse the commentary archive

Odd, portentous event today. Retiring Bank of England Deputy Governor said that the present low volatility in financial markets is "eerily reminiscent" of the run-up to the 2008 financial crisis. Now I wonder why he did that? Was this just a Greenspan maneuver, dusting his skirts clean before he leaves and the world blows apart? Or is it a well-meant warning?

Volatility returned to US Stocks today. Dow sank 137.55 (0.83%) to 16,374.31, while the S&P500 also gurgled lower 12.25 (0.65%) to 1,872.83.

Ooooh. That takes the Dow below its 50 DMA (16,403) where cheerleaders were hoping the Dow would stage a rally. Let's see, below 50 DMA & 20 DMA and 200 DMA rests below at 15,891. S&P 500 did not punch through its 50 DMA (1,868) tut touched it and closed not much higher. Russell 2000 & Nasdaq Composite offer no comfort at all. Russell 2000 is below its 50, 20, AND 200 DMA, and about to break down out of a plain topping formation. Nasdaq Comp has nearly completed a head & shoulders top, and is also below its 50 & 20 DMA. Nasdaq 100 alone remains above its 50 & 20 DMA, but it's finishing the right shoulder of a H&S top, too.

It begins to look more and more like 13 May marked the top in stocks.

Dow in Silver & Dow in Gold agree with that conclusion. Dow in Gold today broke clean out of its rising flat topped triangle. Ended down 0.96% (without gold moving!) at 12.65 oz (G$261.50 gold dollars). It's already below its 20 DMA, and the 50 lurks nearby at 12.55 oz (G$259.43).

I don't think it can be denied any longer that the Dow in Silver has turned down, too. It has walked through two uptrend lines, & today closed again below its 20 DMA (849.60 or S$1,098.47). On flat silver it lost 1.11% today to 844.04 oz (S$1,091.28 silver dollars). Should move much lower.

I'd be bald as a Boston billiard ball if I were the Nice Government Man tasked with managing the US dollar -- but then again, I reckon they're doing just what they mean to do. Catatonic, it rose 3 basis points to 80.10. Euro fell 0.7% to $1.3701, Yen rose 0.16% to 98.91. None of them have a lick of gumption. Dollar roared off a bottom two weeks ago, hit 80.40, and forgot what it was doing. Euro has broken down into a fall that may last six or nine months. Yen has broken out upside like a chick hatching, one chip at a time, no follow through. Gigantic moves, followed by catatonia.

Friends, this don't happen in nature. Gold's last three daily moves have been -20 cents, plus 40 cents, and plus 80 cents. This is not a market but a mausoleum. Gained 80 cents today for a Comex close at $1,294.50. Silver rose -- ready for this? -- 4.5 cents to 1936.7c.

I'm haunted by what the BoE's Bean said. I remember only too well August through November 2008. It was horrifying. The paper & physical prices of silver & gold completely disjointed. Physical silver cost 40% or more above the paper quote, and you couldn't get it except with a six to eight week delay. US 90% silver coins rose to a 50% premium Physical gold didn't acquire that large a premium, but was still 5 - 8% higher than paper gold. And delays? You were lucky to find a wholesaler who would sell it to you even with an 8 week delay.

Markets don't ever play dead long. Silver & gold are both in technical uptrends (higher highs, lower lows), but I could make an argument either way from this flatness: either it means silver & gold will drop off, or shoot up. On the weakness side, both silver & gold are below their 20 DMA's ($1,295 & 1945c). Gold has built that long narrow even-sided triangle, and that suggests a snake coiling for a long move, you just don't know which way he will strike.

You're right, I am coming down squarely on both sides of the fence. I am not ambiguous about this, though: breakout will come soon, up or down.

On 20 May 1631 the largely Protestant city of Magdeburg was sacked by forces of the Holy Roman Empire during the 30 Years' War. The city held out from November 1630 until 20 May 1631. When the city's defenses were breached, the Imperial Commander the Count of Tilly allowed his forces a free hand to pillage. Of the 30,000 inhabitants only 5,000 survived. For two weeks charred bodies were dumped into the Elbe River. In some areas of Germany, the 30 Years' War killed 90% of the inhabitants. The war took on a life of its own that had nothing to do with religion.

On 20 May 1775 North Carolina became the first colony to declare its independence. As y'all might suspect, I had a relative involved in that. I can't help myself, it's in my blood: I'm a genetic tax protestor.

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
20-May-14 Price Change % Change
Gold, $/oz 1,294.50 0.80 0.06%
Silver, $/oz 19.37 0.00 0.02%
Gold/Silver Ratio 66.841 0.026 0.04%
Silver/Gold Ratio 0.0150 -0.0000 -0.04%
Platinum 1,468.10 -1.30 -0.09%
Palladium 825.70 10.30 1.26%
S&P 500 1,872.83 -12.25 -0.65%
Dow 16,374.31 -137.55 -0.83%
Dow in GOLD $s 261.48 -2.36 -0.89%
Dow in GOLD oz 12.65 -0.11 -0.89%
Dow in SILVER oz 845.47 -7.30 -0.86%
US Dollar Index 80.07 -0.04 -0.05%
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: 1,294.80      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,331.05 1,340.12 1,340.12
1/2 AE 0.50 659.84 682.04 1,364.07
1/4 AE 0.25 329.92 347.49 1,389.97
1/10 AE 0.10 135.85 141.78 1,417.81
Aust. 100 corona 0.98 1,262.82 1,271.82 1,297.51
British sovereign 0.24 307.08 311.83 1,324.69
French 20 franc 0.19 243.55 246.59 1,320.78
Krugerrand 1.00 1,309.04 1,319.04 1,319.04
Maple Leaf 1.00 1,309.80 1,324.80 1,324.80
1/2 Maple Leaf 0.50 744.51 679.77 1,359.54
1/4 Maple Leaf 0.25 330.17 346.36 1,385.44
1/10 Maple Leaf 0.10 137.25 141.13 1,411.33
Mexican 50 peso 1.21 1,553.21 1,564.21 1,297.34
.9999 bar 1.00 1,299.33 1,313.80 1,313.80
SPOT SILVER: 19.37      
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 14,775.48 15,025.48 21.01
US 40% silver 1/2s 0.30 5,520.93 5,670.93 19.22
100 oz .999 bar 100.00 1,941.50 1,991.50 19.92
10 oz .999 bar 10.00 194.15 199.15 19.92
1 oz .999 round 1.00 19.47 19.97 19.97
Am Eagle, 200 oz Min 1.00 21.22 21.62 21.62
SPOT PLATINUM: 1,468.10      
Plat. Platypus 1.00 1,483.10 1,500.10 1,500.10
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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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