The Moneychanger
Daily Commentary
Wednesday, 1 February a.d. 2017 Browse the commentary archive

Please forgive me for missing y'all Monday & Tuesday. Monday evening I had to travel 3 hours to Chattanooga for the first post-operative check up on my foot. This requires my lying on my back in the back seat because I have to keep my foot elevated. This is more fun than a root canal, & takes longer.

Thank God, I got a good report but was sentenced to another week of elevated foot, which is to say, doing nothing. Of all the things in the world I can do, "nothing" ranks not high among them. All the same, I have no choice, and will make a virtue out of my necessity (at least to my children, who kindly have mounted a 24 hour watch over me, anxious perhaps I might escape.) Whoops, only joking! Their tender love and concern greatly comforts me. I just get irritable when I have to keep still.

Yesterday the bottom fell out of the dollar index. It fell a meaty 93 basis points (0.9%) to 99.48, and closed on what might be the neckline of an emerging head & shoulders top. Today it bounced 22 basis points, like a dead cat, to 99.70. Behold the chart,

If that indeed is a Head and Shoulders, the dollar ought to rally off that neckline to form that right shoulder. On the other hand, it might keep on sinking to 99. Indicators give no hint of turning up. And as it tries to rise the Dollar Index will bump its head on resistance at 100.70. No alarm bells ring for a rally until it climbs above 102, none ring for a crash until it falls through 97.5. Looks like the dollar may have used up its Trump juice, and the Federal Reserve Open Mouth Committee (FOMC) didn't do the buck any favor by leaving their discount rate unchanged today. Still, they promise to raise it LATER.

Monday & Tuesday the Dow Industrials lost 1.15%; Monday was the largest one day loss since the Trump Rally began on 7 November 2016. Today's 26.85 Dow rise to 19,890.94 (+0.14%) looked as lame as a clarinet hanging on a Poland China hog's neck. Get out your microscope to see the 0.68 point (0.03%) the S&P500 rose to 2,279.55.

Here is the Dow Industrials chart, S&P500 chart is found here,

Both charts continue to trade within broadening tops. Bottom boundary of that megaphone for the Dow is roughly 19,600 & the 50 DMA (19688). Must break those points to prove a decline. When that comes, it will likely come swift & deadly.

On the S&P500 chart I have craftily raised the top megaphone boundary to account for the last few days' rise. This 16 month chart shows you the background for the Trump rally, a rising wedge that formed through all 2016. Rising wedges, I remind y'all, predict dismal outcomes.

While stocks tripped & stumbled, metals stormed & breached barriers. Tuesday gold leaped from $1,193.20 to $1,208.60, up 1.3% and, for morale, a conquest of $1,200 resistance. Silver, which had suffered a block at 1730¢, punched clean through that and rose 39¢ to 1751.2¢, up a clean 2.3%. After a day like that, a little give-back isn't uncommon. Silver scraped off 9.2¢ (0.5%) to 1742¢, holding on well above 1730¢ resistance. Gold backed off $3.00 (0.3%) to $1,205.60.

Silver's the stronger, so let's ponder that first. Here's the chart,

I've been assuming Silver was outlining an upside-down head and shoulders reversal pattern, and that may still be true. Raise the neckline on the right. But the pattern also looks now like a "cup and handle" reversal. On 27 January silver painted the first half of a key reversal with a new intraday low and a higher close. Then it confirmed that reversal with two, not one, days' higher closes. And broke through that resistance marked "neckline" about 1730¢.

Here thickeneth the plot. Silver stands only about 50¢ from its 200 day moving average (1793¢), & just pennies above that is the downtrend line from the July 2016 high. Punching through that would set silver off on a rally indeed. Deal, however, with the possibility that silver might need two tries to puncture that line. More rocket fuel for silver: momentum indicators have plenty of room to grow, so don't threaten to choke off a silver advance any time soon.

Now gaze upon gold's chart,

Do y'all see that that bowl we have been watching, the one with the lip at $1,220, has transmogrified into a cup and handle? If so, gold will shortly, today or tomorrow, punch through $1,220 and run toward its 200 DMA ($1,267).

Helping gold along, the RSI & MACD also have plenty of room to rise. Gold's toughest roadblock stands at the downtrend line from the July 2016 high, today about $1,320.

Folks, things just got interesting. Look at the Gold/Silver ratio,

The ratio topped back in February 2016 at 83.13, so the background is an overall downtrend. (This chart is jumpy & messy because it isn't based on the Comex closes but End of Day figures. That's why I don't get too excited when the ratio pokes through channel lines like it did in December 2016.) The ratio is about to break down from the consolidation range than began with July highs in both metals. Generally -- or "often" -- the ratio FALLS during metals' rallies, so this ready-to-tumble ratio is another mark in favor of a rally.

Also, the Dow in Gold and Dow in Silver have continued to slide, and have now sliced through the 50 DMAs, further confirming their downtrend. That downtrend whispers that money will start flowing from stocks into gold. Yes, we are waiting for a nasty, terrifying day in stocks to light that fuse, but all the dynamite is already in place.

Not to wax gloomy, but the nasty, mad-dog rage now ruling American politics makes my heart skip beats. Gone is any gentlemanly tolerance, and there remains only ideological enemies to the death. When people start throwing literal rocks at each other, they are a very short step from shooting each other. Makes you want to grab 'em by the collar and shake 'em and say, "Hey! Liberals/Conservatives are human beings, too!" For many years I have studied the War For Southern Independence and foreign civil wars. Once that genie of violence escapes the bottle, rivers of blood flow. Is any ideology worth that? Lord, have mercy on us!

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
1-Feb-17 Price Change % Change
Gold, $/oz 1,205.60 -3.00 -0.25%
Silver, $/oz 17.42 -0.09 -0.53%
Gold/Silver Ratio 69.208 0.192 0.28%
Silver/Gold Ratio 0.0144 -0.0000 -0.28%
Platinum 996.30 -27.00 -2.64%
Palladium 762.95 -3.55 -0.46%
S&P 500 2,279.55 0.68 0.03%
Dow 18,890.94 26.85 0.14%
Dow in GOLD $s 323.91 1.30 0.40%
Dow in GOLD oz 15.67 0.06 0.40%
Dow in SILVER oz 1,084.44 7.23 0.67%
US Dollar Index 99.48 -0.93 -0.93%
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SPOT GOLD: 1,208.90      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,237.91 1,248.79 1,248.79
1/2 AE 0.50 622.07 636.49 1,272.97
1/4 AE 0.25 317.07 324.89 1,299.57
1/10 AE 0.10 126.83 132.37 1,323.75
Aust. 100 corona 0.98 1,175.48 1,184.48 1,208.41
British sovereign 0.24 286.71 299.71 1,273.19
French 20 franc 0.19 225.70 231.70 1,241.04
Krugerrand 1.00 1,222.20 1,232.20 1,232.20
Maple Leaf 1.00 1,218.90 1,232.90 1,232.90
1/2 Maple Leaf 0.50 695.12 634.67 1,269.35
1/4 Maple Leaf 0.25 308.27 323.38 1,293.52
1/10 Maple Leaf 0.10 128.14 131.77 1,317.70
Mexican 50 peso 1.21 1,444.33 1,455.33 1,207.04
.9999 bar 1.00 1,208.90 1,220.90 1,220.90
SPOT SILVER: 17.57      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 23.00 27.00 0.04
VG+ Peace dollar 0.77 17.00 20.00 0.03
90% silver coin bags 0.72 12,348.05 12,634.05 17.67
US 40% silver 1/2s 0.30 4,991.40 5,141.40 17.43
100 oz .999 bar 100.00 1,747.00 1,772.00 17.72
10 oz .999 bar 10.00 177.20 182.20 18.22
1 oz .999 round 1.00 17.82 18.12 18.12
Am Eagle, 200 oz Min 1.00 19.07 20.57 20.57
SPOT PLATINUM: 996.30      
Plat. Platypus 1.00 1,011.30 1,041.30 1,041.30
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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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