The Moneychanger
Daily Commentary
Monday, 2 May a.d. 2016 Browse the commentary archive

Y'all remember, of course, that the main driver of currency exchange rates is the relative interest rate. "Relative" here means "interest rate LESS expected loss from inflation." But that little fillip aside, interest rates drive exchange rates.

And the Fed lured folks into believing they would raise rates. Blew smoke so effectively that the US dollar index rose from 80 in July 2014 to 100+ in March 2015.

Alas, as every poker player knows, you can only blow smoke so long before you have to lay down cards. Last September, the Fed passed on raising rates, just flinched. Last December, they raised their discount rate a contemptible 0,.25%, but even that little spit in the wind nearly wrecked the world's stock markets.

Since September the dollar has taken sucker punches from one palooka after another, trashy ECB and scummy BoJ. Finally last week the Fed flinched again, and the BoJ announced it would NOT take its rate lower into negative territory. Relatively, that was a RISE in Japanese rates, a higher rise since the Fed like a drunk trying to quit shoved off its deadline another four or five months into the always-disappearing future.

In the last six trading days the US dollar index has dropped every single day, from 95.08 to 92.62 today, a 2.6% loss. That's big in the currency world. Thursday it dropped 69 basis points, Friday 70, and today another 41 (0.44%) for that 92.62 close. Lo, one beginneth to recall fondue, as the cubed cheese begins to heat up and deform in the pot. What's that called? Right, MELT-DOWN.

At 92.62 the dollar stands on the very cliff's edge, backwards, balancing on its toes. Y'all go look for yourselves,

Only thing going for the US dollar index is the Commitments of Traders reports, which argue for a reversal. However that won't argue very hard with a close below 92.50. And behold! From 92.50 back to the 2014 breakout at 80, no support appeareth, no, not none, leading on to deduce that cracking that 92.50 will bring an epic dollar plunge, or dare I say, melt down?

Miss not this: if the dollar does turn around here, it raises suspicions it will run back to 100.

While the dollar is melting down, the yen is melting up. It lost 0.07% today, but still closed at 94.10. Lo, the chart,

Euro is profiting from the dollar's distress. Rose 0.75% to $1.1532. It has moved furiously sideways for the past 12 months, but today closed above 1.1500 for the first time since early 2015 (save for a one day spike). If it escapes thru the range's top at $1.1500+, it ought to run. Yet who can tell with currencies? It's a fool that tries to read intent in a central banker's heart.

Stocks gained today, but when you lose 260 points over two days and gain back 117 points the third, that ain't progress. Well, maybe that's progress in socialist countries, but not in sane lands. Whoa. Come to think of it, there ain't no sane lands in the world today.

Dow gained 117.52 (0.66%) to 17,891.16. SP500 added 16.13 (0.78%) to 2,081.43. I will forbear to mention my suspicions of Nice Government Men painting the tape or jimmying the prices. Shucks, y'all are probably already suspecting that all on your own.

Gold & silver couldn't agree today. Gold climbed $5.50 (0.43%) to $1,294.70 while silver slid 13.3¢ (0.75%) to 1765.6¢.

Meseemeth no problem lieth here. Gold is taking leadership out of silver's hands (the gold/ silver ratio jumped up today). Gold backed up to the breakout point with a low at $1,289.60. Normal action, nothing to mourn & weep & shiver about. Touched $1,306 at its high, and the BIG TARGET is $1,308, the 2015 high. Should gold close above that point, 'twill be the first time since 2011 it has closed above a previous year's high.

Y'all paying attention? This is a momentous step. Gigantic. Portentous.

Silver did nothing to be ashamed of. It remains above every close in this move from December save Thursday's & Friday's. It's a well deserved pause before shooting higher.

THE STICK IN THE SPOKES: Yes, there's always one. For gold & silver it is the frowning CoT reports, which favor not higher prices. However, remember that surprises in bull moves come to the Upside. Those CoT stats can stay out of whack quite a while before they wreak their vengeance. Overbought can always get overboughter. However, it behooves our peace of mind & equinimity to keep reminding ourselves that speculative buying is driving this, and if any of the drivers weaken or disappear (like the US dollar rallying), it could quickly end.

Put it into perspective. I'm only talking about this current rally. Silver & gold completed their 2011-2015 correction in December. Next five to 8 years both will move so much higher I am loathe to name numbers, lest y'all send after me the men with the jacket that buckles in the back.

My son Christian is trying to sell his house here on the Top of the World Farm & asked me to give y'all a link to it, so here 'tis, It was built in 2011. Pretty place. Peaceful.

Also, I have the temerity to remind y'all of my heartfelt request. I have to have foot surgery on Friday, 6 May, and would deeply appreciate y'all's prayers. Thanks in advance.

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
2-May-16 Price Change % Change
Gold, $/oz 1,294.70 5.50 0.43%
Silver, $/oz 17.66 -0.13 -0.75%
Gold/Silver Ratio 73.329 0.857 1.18%
Silver/Gold Ratio 0.0136 -0.0002 -1.17%
Platinum 1,084.90 7.00 0.65%
Palladium 625.00 -2.90 -0.46%
S&P 500 2,081.43 16.13 0.78%
Dow 17,891.16 117.52 0.66%
Dow in GOLD $s 285.66 0.67 0.23%
Dow in GOLD oz 13.82 0.03 0.23%
Dow in SILVER oz 1,013.32 14.18 1.42%
US Dollar Index 92.62 -0.41 -0.44%
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: 1,292.30      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,329.78 1,335.59 1,335.59
1/2 AE 0.50 658.56 681.69 1,363.38
1/4 AE 0.25 332.51 347.31 1,389.22
1/10 AE 0.10 135.59 141.51 1,415.07
Aust. 100 corona 0.98 1,260.38 1,269.38 1,295.02
British sovereign 0.24 306.49 319.49 1,357.22
French 20 franc 0.19 243.08 247.08 1,323.42
Krugerrand 1.00 1,303.93 1,313.93 1,313.93
Maple Leaf 1.00 1,302.30 1,316.30 1,316.30
1/2 Maple Leaf 0.50 743.07 678.46 1,356.92
1/4 Maple Leaf 0.25 329.54 345.69 1,382.76
1/10 Maple Leaf 0.10 136.98 140.86 1,408.61
Mexican 50 peso 1.21 1,547.09 1,558.09 1,292.27
.9999 bar 1.00 1,296.82 1,304.30 1,304.30
SPOT SILVER: 17.55      
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 13,048.75 13,334.75 18.65
US 40% silver 1/2s 0.30 5,059.25 5,221.25 17.70
100 oz .999 bar 100.00 1,780.00 1,805.00 18.05
10 oz .999 bar 10.00 177.00 182.00 18.20
1 oz .999 round 1.00 17.65 18.11 18.11
Am Eagle, 200 oz Min 1.00 19.05 20.30 20.30
SPOT PLATINUM: 1,084.90      
Plat. Platypus 1.00 1,099.90 1,129.90 1,129.90
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© 2015 Little Mountain Corporation, d.b.a. The Moneychanger. All rights reserved. May not be republished in any form, including electronically, without our express permission.

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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