The Moneychanger
Daily Commentary
Thursday, 7 April a.d. 2016 Browse the commentary archive

You never can be quite sure what's moving markets in the beginning, then a form emerges from the fog. Gold has been stubbornly strong in the teeth of a correction: what giveth?

Today Italians in Naples rioted in response to Prime Minister Renzi's pushing through bills to bail out Italian banks. They're hopelessly choked on bad loans, so of course the Italian taxpayers and bank depositors must bail them out. Sure, sure, like the government would bail out you or me if we made imbecilic loans to obvious deadbeats. Sure.

Bank stocks responded by sinking like axheads in a stock tank. Bank Stock Index ($BKX) fell 2.86% today to close at 62.05. Behold, the chart:

Observe that the BKX peaked last July & thereafter hath fallen like a meteor. Dropped from 80.87 to 55.99 in February. Relief rally followed, which reached resistance around 66 that stopped it cold as kraut. Has been backing down since March, but today closed below the 50 DMA. MACD turned down. RSI points down. Did I mention that it had broken the uptrend line from March 2009 in January 2015? Did I mention it's going further down? Oh. Okay.

More to our tastes is the Gold/Bank Stocks Index spread. As confidence in the financial system wanes, the bank stock index wanes and gold waxes. Since the spread is a fraction, gold/Bank Stock Index, the higher gold rises and the lower the BKX falls, the higher the Gold/BKX spread rises.

Lo, the chart,

Since November 2013 Gold/BKX hasn't been able to stay above 19.50. In 2015 it made a double bottom 13.50 & 13.77. Then it hot up in 2016, complete with runaway gaps, & hit 22.36, a 62% gain. Backed down to correct, even closed below 19.50 and fell as low as 18.63. Turned back up and climbed through the 20 & 50 DMAs. Today it gapped up and closed 20.02, up 4.46%. Probably a runaway gap. MACD has turned up, & the RSI.

So what is driving gold & the bank stock index? Might be the news of an Italian bank crisis has folks running into gold?

That would also explain the euro's lackluster performance & the yen's lustrous performance. Euro today lost 0.22% to $1.1371. Looks like a waterfall waiting to happen. Yen, on the other hand, has since 4 April clambered from 89.83¢/Y100 to 92.43¢, up 2.9% Three days ago it gapped up, then gapped up again today. Looks like a runaway, listen to those hoof beats! Look at the chart to see the runaway,

I reckon stocks don't pertickerly care for bank crises, not even furrin ones. Dow today somewhere squandered 174.09 (0.98%). Let us run our minds back in time & ponder. Since the 1 April Dow high, the Dow has been up as much as 112.73 yesterday, but over the four days has lost a total 250.79 or 1.4%. Pretty good example of what government & Fed economists like to church up as "negative growth." Y'all have all seen negative growth in nature. That's where a squash plant sprouts, grows up, leafs out, blooms, sets fruit, then suddenly the ground sucks it all back in. Right.

S&P500 took even harder licks. Left behind 24.75 (1.2%) to close at 2,041.91.

In passing I point out that the chart was already showing a top. The unknown Italian bank crisis was only part of that, the rest was the fullness of time and stocks' indwelling weakness. They topped last May, broke in August, & ain't coming back for years.

I ain't got time nor space to talk about the Dow in Gold & Dow in Silver. Suffice it to say both are proving that they have turned down.

Another sign of antsyness in the markets: Yield on US 10 year treasury note fell 3.65%, pretty steep and through some internal support. That shows bond prices rising, which implies the fearful are edging toward the exits, trying to beat the stampede to come.

On Comex, which closes at 1:30 Eastern, gold gained $13.70 (1.12%) to $1,236.20. Silver added 10.4¢ (0.7%) to 1515.6¢. In the aftermarket Gold was trading around $1,240.70 and silver around1522.5¢.

Gold barely missed closing above its 20 dma ($1,237.50). Look at the chart,

Day by day gold continues to scale up that rising trend line intertwined with the 50 DMA. Day by day it refuses to break down. Day by day I grow nervouser and nervouser. Day by day any further correction looks less likely.

Wait a minute, Moneychanger! I though you said that when a crisis drives up gold, the effect quickly wears off and the gain is given back.

That's certainly true of panic caused by political crises, but a financial system crisis feeds the heart of gold demand: monetary demand. That's what drives the gold price, & drives it crazy. This Italian crisis is precisely the sort of catalyst you would imagine as a new several year long gold rally begins.

More, if gold drives through that wall at $1,240, it has a chance to push through $1,308 this time. If that happens, say bye-bye: you will NEVER see gold this low again.

I will NO LONGER be telling anyone to hold off buying gold or silver, unless some big drop hits. I am beginning to believer the gold correction has ended, and the next leg up begun. Hold on! Beginning to believe, I said, not certain.

On 6 April 1862 a Confederate Army moving up from Corinth, Mississippi under Albert Sidney Johnston, attacked Grant's Union Army at a place on the Tennessee River called Pittsburg Landing, or Shiloh for the nearby church. In the worst fighting of the war so far, the Confederates rolled up the yankees & except for stubborn pockets of resistance, sent them fleeing for the river.

Unhappily, General Johnston, rumored to be the best soldier in either army, took a bullet to the popliteal artery behind his new, and bled to death in the arms of Tennessee Governor Isham G. Harris. Harris is the only serving governor ever to lead a charge of troops, and he did it at Shiloh. O unhappy stars! Command passed to the nemesis of the Confederacy, General PGT Beauregard, who always managed to snatch defeat from the jaws of victory. Instead of pushing Grant into the river, he sat down. NB Forrest, then a colonel of cavalry, reconnoitered during the night and saw Union General Buell's troops being ferried across the river. He never could find Beauregard or anyone else who would take action. Next day the yankees counterattacked and the Confederates lost all their gains and Beauregard sent them back to Corinth.

Later, covering the Confederate retreat at Fallen Timbers on 8 April, Forrest led a troop of cavalry headlong into the approaching yankees. He outran his own men and suddenly found himself surrounded by Union soldiers shouting, "Shoot him! Shoot him!" One of them did, and the bull lodged in his spine near his pelvis, paralyzing one leg. Forrest reached down and grabbed up a yankee & stuck him on the horse behind him as a shield (must have been a right small yankee), and hightailed for his own lines. Later the ball in his spine was successfully removed and motion restored to his leg.

The Confederate Army of Mississippi had 40,335 men against the union's 63,000. Casualties were staggering, nearly 24,000 men, of those about 3,500 killed. The Confederate failure to crush Grant's army was disastrous, leaving most of Tennessee occupied as gun pointed at the Confederacy's heart. In February, Nashville had fallen. In June, Memphis fell.

My daddy grew up in Michie, about 7 miles from Shiloh. I believe that my grandfather enlisted to fight at Shiloh, but am not certain, and I sure don't have to tell y'all on which side. Daddy was born in 1910, about 50 years after the battle, but when he wandered in the woods he still found buttons and bullets and buckles and all sorts of gear. Today if they caught a kid picking that up, they'd send him to National Park jail until he was 45.

Here's an insightful and worthwhile article about the Scotch-Irish & how they have been emasculated in Appalachia: Maybe it will give you non-Scotch-Irish an idea what it means to grow up fighting -- for two thousand years. It ain't a chip on our shoulder, it's heredity. Article is called, "Modernity has not been kind to the Celt."

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-Apr-16 Price Change % Change
Gold, $/oz 1,236.20 13.70 1.12%
Silver, $/oz 15.16 0.10 0.69%
Gold/Silver Ratio 81.565 0.347 0.43%
Silver/Gold Ratio 0.0123 -0.0001 -0.42%
Platinum 953.80 10.90 1.16%
Palladium 535.30 -4.40 -0.82%
S&P 500 2,041.91 -24.75 -1.20%
Dow 17,541.96 -174.09 -0.98%
Dow in GOLD $s 293.34 -6.23 -2.08%
Dow in GOLD oz 14.19 -0.30 -2.08%
Dow in SILVER oz 1,157.43 -19.56 -1.66%
US Dollar Index 94.57 0.13 0.14%
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: 1,240.70      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,274.20 1,282.26 1,282.26
1/2 AE 0.50 632.25 654.47 1,308.94
1/4 AE 0.25 319.22 333.44 1,333.75
1/10 AE 0.10 130.17 135.86 1,358.57
Aust. 100 corona 0.98 1,210.05 1,219.05 1,243.68
British sovereign 0.24 294.25 307.25 1,305.23
French 20 franc 0.19 233.38 237.38 1,271.43
Krugerrand 1.00 1,250.63 1,260.63 1,260.63
Maple Leaf 1.00 1,250.70 1,264.70 1,264.70
1/2 Maple Leaf 0.50 713.40 651.37 1,302.74
1/4 Maple Leaf 0.25 316.38 331.89 1,327.55
1/10 Maple Leaf 0.10 131.51 135.24 1,352.36
Mexican 50 peso 1.21 1,485.32 1,496.32 1,241.04
.9999 bar 1.00 1,245.04 1,252.70 1,252.70
SPOT SILVER: 15.23      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 22.50 26.00 33.99
VG+ Peace dollar 0.77 17.50 20.00 26.14
90% silver coin bags 0.72 11,743.88 12,103.88 16.93
US 40% silver 1/2s 0.30 4,373.38 4,535.38 15.37
100 oz .999 bar 100.00 1,547.50 1,572.50 15.73
10 oz .999 bar 10.00 153.75 158.75 15.88
1 oz .999 round 1.00 15.33 15.79 15.79
Am Eagle, 200 oz Min 1.00 16.73 17.98 17.98
SPOT PLATINUM: 953.80      
Plat. Platypus 1.00 968.80 998.80 998.80
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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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