The Moneychanger
Daily Commentary
Wednesday, 22 January a.d. 2015 Browse the commentary archive

Here's a little meditation on silver that I wrote responding to the question, "I heard silver will go back to $50 soon. Should I sell or hold on?" Remember that such projections are "projections" & not facts, & beware.

" Silver is just finishing a typical half-way-through-a-bull- market correction, like stocks 1987-1989, gold 1975-1977, silver 1975-1977.  Normal occurrence in bull markets.

"Silver & gold turned up in November & December, & are confirming that now.

"Normally the rise of the market's second half (of a bull market after the mid-way correction) is GREATER than the first half's rise.

"I do not see silver rising back to $50 'soon', but it certainly could end this year above the $26 bull market half-way point.  If the central banks commit even more lunacy than they have done already, silver could rise much faster.

"Ultimate silver target is 1/16 of gold price, and ultimate gold price target is minimum $3,000 and maximum $10,000, and will probably tend toward the higher end.

"Silver rose about 12 times from bull market beginning to April 2011 peak.  If it only duplicates that performance from its December 2014 low ($14.15) it would reach $169.80.  That number looks loony, but there it is, 12 x $14.15.  Implies gold at $2,037.60, so is most likely way short of the ultimate top.

" I don't know what you might invest the money in that offer a better return than silver, other than loansharking."

Now to today's market.

The criminals running the European Central Bank announced today they would buy bonds of the European governments in the amount of €60 billion per month through September 2016. I am jes' a nat'ral born durned fool from Tennessee, & not one of them central banking smarties, so I checked out the ECB's balance sheet. Way-ell, there ain't one, but there's the consolidated statement of the ECB & all its under-central banks, and that amounted on 16 January 2015 to €2.158 trillion. Now if the ECB felons start next month & buy €60 billion a month, that's €1.200 trillion total. I'm a whiz at dividing, so I divided €1.2 trillion by €2.158 trillion & I come up with 55.6%. The ECB will increase its balance sheet by 55.6% twixt now and September 2016, & upon the balance sheet commercial banks can increase the money (credit) supply maybe ten times.

Are y'all getting some tiny idea of what these miscreants intend to do to the euro, & to every saver in Europe? They're gonna steal 'em blind with inflation. Looks like the Swiss cut loose the euro just in time, before it dragged them beneath the waves evermore.

Don't forget the greatest beneficiary of bond buying will be European banks & speculators who own the dead-dog trash paper of Spain, Italy, Greece, Portugal, & Ireland -- and maybe France.

Greatest tragedy? None of this will stimulate the economy, it will only blow up new & worse bubbles. Beginning to look as if the whole engine of central banking is breaking down.

The level of pigheaded ignorance in Europe is perfectly witnessed in this statement from German Chancellor Angela Merkel: "Regardless of what the ECB does, it should not obscure the fact that the real growth impulses must come from conditions set by the politicians." I could have worked all day & all night & not hit upon a statement that blockheaded and wrong. Y'all never forget this, and always remember it: Government never has created the first blessed job. Government never produces anything. Government only consumes, & all government "direction" misdirects an economy. Finally, remember that Governments are like cockroaches: it's not so much what they steal & carry off that hurts, it's what they fall into & foul up.

Finally, a government without socialism is like a fish without a bicycle.

Durn, I'm wore out. It jes' wears me out to handle stupidity this colossal.

Responding to the quacks in Europe, U.S. stocks at first plunged, then rose a little and went flat until about 2:00 p.m., when they rose again. Dow ended the day 259.7 higher (1.48%) at 17,813.98. Following a like trajectory the S&P500 added 31.03 (1.53%) to 2,063.15.

Today's rise leaves both indices above their intertwined 20 & 50 DMAs, but the Dow is now within 100 points of its last high (17,916). Also, it stands right at the downtrend line from the December high. This mirrors the same mood elevation an alcoholic experiences with the first drink of the day. Won't last.

Of course y'all realize that central bank money can't be quarantined in any one country? When the Bank of Japan or the ECB print new money, speculators borrow where the interest rate is low & currency depreciation guaranteed, & run swap for dollars to invest that carry-trade money into a hot New York stock market. Remember, our Rulers assure us it's a global economy now!

Dow in Gold rose, not much, only 0.77%, but enough to bring it back over the 200 DMA (G$280.93 gold dollars or 13.59 troy ounces) to close at G$282.79. Yet it remaineth below (underneath) the uptrend line from the August 2013 low, the big channel boundary we have to deal with right now. Barely below, but below.

Dow in silver hooked up a wee bit, 0.37%, to S$1,255.85 silver dollars (971.32 tr. Oz) Both the Dis & DiG are hovering above their 200 DMAs. Both have broken down from Gator Jaws patterns (megaphone or broadening top). Neither has yet turned up.

Driven by the ECB announcement the US dollar index rose clean through the top channel line & closed up an enormous 164 basis points (1.76%) at 94.72. More overbought than lace doilies at an old ladies' convention, but with the other "major" (got to put quotes around that when referring to scrofulous fiat currencies) currencies fighting a currency depreciation war to the death, can get overboughter still.

Draghi succeeded, today at least, in cheapening the euro. It lost 2.39% to close at $1.1333, a new low. Time to think contrarian. How much lower can it go? News is out. Maybe it experiences at least a little relief rally. Longer term, it has the same chance as a three-legged June bug in a flock of starving ducks.

Yen lost 0.62% to 84.31 cents/Y100, and closed barely below its 50 DMA. Yet it remaineth still in a mumbly, stumbly uptrend.

US 10 year treasury notes fell (yield's rose) as investors shifted out of those and into riskier assets, like sorry European government bonds. West Texas Intermediate Crude fell 2.18% to $46.31/barrel, but has a tee-tiny uptrend going.

Today's thought assignment. Y'all think about this: today stocks rose 256 (Dow), dollar index rose twice as much as it might on a very good day, and in the teeth thereof silver & gold both ROSE. This is a different battleground, friends, than that we have so long fought over.

By the way, lest I forget to mention it later, on a weekly chart Gold has for two weeks closed ABOVE the downtrend line from the 2012 high, and above the 20 week MA.

Today in the teeth of contrary markets rising, gold rose over $1,300 to close at $1,300.70, up $7.00 or 0.54%. Silver added 16.7 cents (0.92%) to 1834.6c.

Gold ranged from $1,279.10 on the low side to $1,307.80. Silver foraged from 1789c to 1844c, reaching again for the 200 DMA at 1847c.

Daily gold is punching at the overhead downtrend line from the October 2012 high, now about $1,308. Breaching that line will send the roaches skittering. Having broken free of an upside-down head and shoulders, it has now passed & left in the dust its 200 dma ($1,255.50) along with the last high ($1,256). Overbought, but I am guessing it has one more thrust in it.

Silver has gained and gained on gold, bringing down the ratio, but hasn't quite closed above its 200 DMA. That's at 1847c, about the same place the tough resistance lies, namely, 1860c, the bottom that held through 2013 & most of 2014. Silver needs power to push through that, but today's rise more than whispers it has that power. Warning: silver has reached the overbought line on the RSI, above 70 at 71.52. Sharply rising rate of change has also slowed.

Every day I become more certain that silver & gold's price lows lie in the past.

On 22 January 1506 the first contingent of 150 Swiss Guards arrives at the Vatican. The Swiss were already famed as mercenaries across Europe, so much so that the main export of their small country became men. During the Reformation the Zurich Reformer Ulrich Zwingli worked long and hard to abolish the trade in mercenaries.

On 22 January 1879, after a British regiment had been destroyed at Isandhlwana in South Africa, a British garrison of 150 held off 3,000 - 4,000 Zulu warriors at Rorke's Drift (Ford). Their stand kept the Zulu from crossing the Tugela River into British territory unopposed. The 1964 movie Zulu offers an excellent and stirring depiction of both sides, especially that closing when they sing "Men of Harlech."

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
22-Jan-15 Price Change % Change
Gold, $/oz 1,300.70 7.00 0.54%
Silver, $/oz 18.35 0.17 0.92%
Gold/Silver Ratio 70.898 -0.266 -0.37%
Silver/Gold Ratio 0.0141 0.0001 0.38%
Platinum 1,284.00 6.70 0.52%
Palladium 773.60 5.35 0.70%
S&P 500 2,063.15 31.03 1.53%
Dow 17,815.98 259.70 1.48%
Dow in GOLD $s 283.15 2.62 0.93%
Dow in GOLD oz 13.70 0.13 0.93%
Dow in SILVER oz 971.11 5.36 0.56%
US Dollar Index 94.72 1.64 1.76%
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SPOT GOLD: 1,301.70      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,330.34 1,347.26 1,347.26
1/2 AE 0.50 669.86 686.65 1,373.29
1/4 AE 0.25 334.93 349.83 1,399.33
1/10 AE 0.10 136.57 142.54 1,425.36
Aust. 100 corona 0.98 1,266.99 1,275.99 1,301.77
British sovereign 0.24 308.72 313.72 1,332.70
French 20 franc 0.19 244.85 248.85 1,332.89
Krugerrand 1.00 1,316.02 1,326.02 1,326.02
Maple Leaf 1.00 1,316.70 1,331.70 1,331.70
1/2 Maple Leaf 0.50 748.48 683.39 1,366.79
1/4 Maple Leaf 0.25 331.93 348.20 1,392.82
1/10 Maple Leaf 0.10 137.98 141.89 1,418.85
Mexican 50 peso 1.21 1,558.34 1,569.34 1,301.60
.9999 bar 1.00 1,306.26 1,317.70 1,317.70
SPOT SILVER: 18.35      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 23.00 27.00 35.29
VG+ Peace dollar 0.77 18.50 21.00 27.45
90% silver coin bags 0.72 13,835.25 14,192.75 19.85
US 40% silver 1/2s 0.30 5,221.50 5,371.50 18.21
100 oz .999 bar 100.00 1,825.00 1,885.00 18.85
10 oz .999 bar 10.00 188.50 189.50 18.95
1 oz .999 round 1.00 18.45 19.00 19.00
Am Eagle, 200 oz Min 1.00 20.10 20.75 20.75
SPOT PLATINUM: 1,284.00      
Plat. Platypus 1.00 1,309.00 1,349.00 1,349.00
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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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