The Moneychanger
Daily Commentary
Wednesday, 13 April a.d. 2016 Browse the commentary archive

It's complicated. I reckon it's always complicated, & today got more complicated. In a word, "Dollar index may have broken out to the upside, as well as stocks; higher dollar will reveal how stubbornly silver & gold are determined to rise."

First, look at this US dollar index chart,

The dollar index formed a falling wedge from mid-March until yesterday. Wedges generally resolve by breaking out opposite the direction they point. Today the dollar index rose 82 basis points (0.87%) to 94.76, enough to poke unabashedly through the wedge's top boundary. MACD & RSI also witness a reversal upward.

What can happen? IF the dollar index can confirm the breakout by piercing the 20 DMA (94.96), then it will run for the 50 DMA (96.22). Before that comes important resistance at 92.25, so watch that.

Yesterday I mentioned that a falling dollar occasions upward re-pricing in all assets. When the dollar rises, we'll find out which assets were merely passively re-pricing, and which mean to rise and no matter the dollar.

On a good quarterly earnings report from JP Morgan, stocks rose, especially bank stocks, dog of dogs, cat of cats, rotten stock of all rotten stocks. Investors ignored a report from US banking regulators that failed 5 of 8 big banks on their plans for a bankruptcy that would not rely on taxpayer money. Among the five failers was, of course, JP Morgan.

Ponder the Bank Stock Index ($BKX), here,

$BKX gapped up & closed above the 20 DMA. That didn't draw my eye as much as the two preceding tops at the same point, causing to echo off the walls of my cranium the market proverb, "Double tops hold, triple tops don't." Also, the MACD is striving to turn up.

Seems awfully late in this stock rally for bank stocks to be so juiced, but nobody ever got rich arguing with charts. Another day's higher close will send the $BKX toward the 200 DMA, now at 70.46.

None of this happens in a vacuum. Remember that monetary demand for gold, the real driver of the gold price, feeds on distrust of financial markets, while the $BKX feeds of trust in same. Here's the Gold/$BKX spread,

Mark the gap today as it fell down ($BKX rose faster than gold). Mark that it nearly reached the last low at 18.63. Mark that the MACD has turned down.

Bottom line? Gold/$BKX must turn around, and soon, or stocks in general will suck money away from gold. This may be a Last Hurrah for bank stocks & stocks, but that theory must be validated by a lower $BKX tomorrow and higher Gold/BKX.

A similar conundrum appears in stocks. Dow gained 187.03 (1.06%) today to close at 17,908.28. S&P500 gathered 20.7 (1%) to 2,082.42. For both indices that posts a new high for the rally that began mid-February, a long-in-the-tooth rally that had appeared to be rolling over. Fluke, or will the rally extend? Gravity beckons strongly, but a higher close tomorrow would send stocks higher still.

I look at the charts of the Dow in Gold and Dow in Silver & see unequivocal downturns from the upward correction. They argue strongly against higher stocks.

Gold backed off $12.60 (1%) to $1,246.80. Silver gainsaid and went her own way, rising 10.3¢ (0.6%) to 1632.3¢

I am struggling, wrestling with this, because every bit of this says, "YAHOO! We're marching higher." Oh, gold backed off? Right, but only to the top of that $1,240-$1,245 resistance/support. Perfect: a touchback before take-off. Stayed above the 20 DMA. Has broken out of a triangle to the upside, go look, On the other side, the RSI an MACD are a little queasy.

Silver has closed two days above the last high (1617¢) confirming its intention to climb higher. Here's a different chart,

If we draw a trading channel (green dashed lines), silver has hit the upper boundary. Far more important, though, is that silver has crossed above its downtrend line form the April 2011 high. Normally a bounce back away from a channel boundary will follow, but since silver is punching into that very, very long term downtrend line, It might push ahead. I'm worried that gravity will take it, but fretting that it might reach escape velocity. Odds probably favor a short correction. Those odds become stronger if the dollar index manages to keep climbing.

I reckon there ain't nothing sacred, nor nothing Americans can't industrialize to tasteless mush. In Germany, delectable Havarti cheese smells like rotten feet, but tastes like heaven. Only a person wholly bleaf (lacking all sense of smell) could mistake Havarti for any other cheese in the world. Hate it or love it, 'tis a Real Thing.

Night before last we had a substance Susan had bought at Sam's labeled "Danish Havarti." A libel on Denmark & on Havarti. A libel on cheese. Think white colored Velveeta. No taste at all, vaguely cheesy texture, so artificial I don't believe flies would land on it. What is it about the American food industry, that they have to Velveeta-ize all the taste out of everything? I won't eat that slop.

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
13-Apr-16 Price Change % Change
Gold, $/oz 1,246.80 -12.60 -1.00%
Silver, $/oz 16.32 0.10 0.64%
Gold/Silver Ratio 76.383 -1.262 -1.63%
Silver/Gold Ratio 0.0131 0.0002 1.65%
Platinum 1,002.20 3.70 0.37%
Palladium 543.70 -1.85 -0.34%
S&P 500 2,082.42 20.70 1.00%
Dow 17,908.28 187.03 1.06%
Dow in GOLD $s 296.92 6.04 2.08%
Dow in GOLD oz 14.36 0.29 2.08%
Dow in SILVER oz 1,097.12 4.56 0.42%
US Dollar Index 94.76 0.82 0.87%
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British sovereign 0.24 294.49 307.49 1,306.24
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US 40% silver 1/2s 0.30 4,671.33 4,833.33 16.38
100 oz .999 bar 100.00 1,648.50 1,673.50 16.74
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Am Eagle, 200 oz Min 1.00 17.74 18.99 18.99
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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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