The Moneychanger
Daily Commentary
Wednesday, 25 May a.d. 2016 Browse the commentary archive

Anybody can read a sign, but not everybody knows what it says.

Today I am looking at gold, silver, the gold/silver ratio, & the US dollar index & wondering hard what it all says. Y'all know that "setting targets" off a chart is an inexact art. And if I were wholly wise, wholly rational, & wholly in control of myself, I would never buy or sell unless I had perfect proof & confirmation. But I ain't, and don't, so I sometimes I guess & hope it works.

I might be totally wrong, just misreading one day's little rise, so take all else I say against that background.

What has me head-scratching? Silver gaining while gold drops. This is a correction, for mercy's sake, and in corrections silver is almost always WEAKER than gold, not stronger. Yet we are seeing days where gold falls, but silver gains a few pennies, or falleth not as much.

The gold/silver ratio witnesses that.

Coming off that March high at 84.38, the ratio by end-April had fallen to 70.40, down 16.5%. Whew! Silver ran around the track twice while gold puffed & was left behind. Predictably, the ratio corrected upward, but remember that it had broken down out of that long standing channel (green line). Now it has traded up to the channel line, which also just now coincides with the 200 day (roughly one year) moving average, and fallen back. Lost 0.8% today. Hovering above the 20 day moving average.

Reflect! The peak above 84 signals a seachange in metals. The ratio will continue to FALL generally as silver & gold move up in this next leg of their bull market. For the short term, if the ratio is turning down, silver & gold are about to turn up.

Ponder the US dollar index.

Over & over I've observed the same. It has dragged its feet, too embarrassed or too lazy or too puny to rise. It finally rolled over the upper boundary of that downtrending channel that has ruled since February, but like PGT Beauregard refused to take advantage & improve its gains. Today it fell again, down 18 basis points (0.19%) to 95.16, clearly terrified of that 95.50 resistance. Now this ain't the World's End, but it ain't hot work, either. Dollar's rise so far has been weak, & that whispers, if not promises, strength for silver & gold.

Gold today dropped 3.4% (0.3%) to $1,220.40 on Comex. Silver GAINED 8.3¢ (0.5%) to 1633.8¢.

Let's go back over this. To correct 38.2% of the December - May rise, gold would have to touch $1,206, silver 1638$ (already hit 1623.8¢). Silver's 50% correction lies at 1587¢.

Bottom line? I'm not saying the metals' correction has ended, only suspecting they are very close & this correction may prove shallower than I expected.

After two day's goosing by computerized trading, moonbeams, and Fed pixie dust, stock dropped again today. Dow backed up 23.22 (0.13%) to 17,828.29. S&P500 shaved off 0.44 90.02%) to 2,090.10. I ain't deef. I hear all the folks rooting for stocks to excel their highs made about this time last year. I reckon they long in vain.

Dow in Gold and Dow in Silver point that way, too. Here's the DiG, and here the DiS,

Dow in Gold shows gold's weakness relative to silver (you'll see that at once when you look at the DiS). DiG actually re-crossed above the uptrend from the 2011 Low & pierced the downtrend line from December. It remains, however, below the 200 DMA.

Dow in silver, on the other hand, as the recently stronger metal, remains far below its after-December downtrend. Yep, it corrected up through the 20 & 50 DMA, but also hooked down today. Too early to call them "Turned down", but both are showing a mind to do just that.

Most hearty thanks to you Brits who answered my query about Brexit. Oddly enough, several responses mentioned the bookies' odds, which giv staying a 70% chance. More than half mentioned that they thought younger people were -- I'll put this less politely than y'all did -- suckers for anti-Brexit propaganda. Most of the responses saw that for the UK to remain in the EU would eventually destroy self-government and, as one man put it, "cede any meaningful sovereignty to an unelected foreign socialist bureaucratic regime." Another said that the Big Money and politicians backed staying, while entrepreneurs & producers wanted out. Another said that however the vote goes, you can't put the toothpaste back into the tube: Brexit will come back, for a long time.

Sounds like y'all would fit right into Tennessee.

I drove to Chattanooga today to my foot surgeon, who said everything looked fine. My toe looked like one of those Italian sausages wrapped in string and left to dry in the basement, so I was bewildered -- what would "rotten" look like? I can fell the wire (we say "WAR" around here) in my foot bones. Doesn't altogether hurt, just leaves me real cautious & thoughtful about any sudden moves. Two more weeks and he pulls the wire. I sincerely appreciate y'all's prayers on my behalf. Don't stop yet, I'm still way short on patience.

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
26-May-16 Price Change % Change
Gold, $/oz 1,220.40 -3.40 -0.28%
Silver, $/oz 16.34 0.08 0.51%
Gold/Silver Ratio 74.697 -0.591 -0.78%
Silver/Gold Ratio 0.0134 0.0001 0.79%
Platinum 995.30 1.10 0.11%
Palladium 543.40 13.00 2.45%
S&P 500 2,090.10 -0.44 -0.02%
Dow 17,828.29 -23.22 -0.13%
Dow in GOLD $s 301.99 0.45 0.15%
Dow in GOLD oz 14.61 0.02 0.15%
Dow in SILVER oz 1,091.22 -7.00 -0.64%
US Dollar Index 95.16 -0.18 -0.19%
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SPOT GOLD: 1,219.70      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,253.85 1,260.56 1,260.56
1/2 AE 0.50 621.54 643.39 1,286.78
1/4 AE 0.25 313.82 327.79 1,311.18
1/10 AE 0.10 127.96 133.56 1,335.57
Aust. 100 corona 0.98 1,189.57 1,198.57 1,222.78
British sovereign 0.24 289.27 302.27 1,284.07
French 20 franc 0.19 229.43 233.43 1,250.27
Krugerrand 1.00 1,229.46 1,239.46 1,239.46
Maple Leaf 1.00 1,229.70 1,243.70 1,243.70
1/2 Maple Leaf 0.50 701.33 640.34 1,280.69
1/4 Maple Leaf 0.25 311.02 326.27 1,305.08
1/10 Maple Leaf 0.10 129.29 132.95 1,329.47
Mexican 50 peso 1.21 1,460.18 1,471.18 1,220.18
.9999 bar 1.00 1,223.97 1,231.70 1,231.70
SPOT SILVER: 16.34      
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 12,255.10 12,615.10 17.64
US 40% silver 1/2s 0.30 4,702.30 4,864.30 16.49
100 oz .999 bar 100.00 1,659.00 1,684.00 16.84
10 oz .999 bar 10.00 164.90 169.90 16.99
1 oz .999 round 1.00 16.44 16.90 16.90
Am Eagle, 200 oz Min 1.00 17.84 19.09 19.09
SPOT PLATINUM: 995.30      
Plat. Platypus 1.00 1,010.30 1,040.30 1,040.30
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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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