The Moneychanger
Daily Commentary
Wednesday, 8 March a.d. 2017 Browse the commentary archive

Let's try to unravel this mess. The rotten US dollar index is the heart of the problem. Well, let's say "tumor" instead.

Market has been OVER-anticipating the FOMC's pismire discount rate increase. I say "pismire" because how much punch can a quarter or half point rate increase carry on a gargantuan economy? Not much, & it's already spent most of that.

This anticipation has puffed up the dollar index to 101.96 (another 16 basis points or 0.16% today). Here's the chart,

So far at least -- subject always to later moves by the market -- the head & shoulders top pattern remains intact, threatening to put the lid to any dollar rally. Regardless the outcome of that pattern, when the FOMC meets next week & makes its prolix & verbose announcement it's raising rates, that would be the news to sell.

Siren song of rate increase has caught the 10 year treasury yield, leading to a gap-up breakout to a new high for the year. It also resolves a 3 month narrow even-sided triangle to the upside. Chart's here,

Rising interest rate has wounded nigh unto death junk bonds, here proxied by HYG:

Of course, if rates keep rising immediately, and (as I don't expect) rise after the FOMC meeting, that will float the dollar index higher. And beat stocks with the sharp side of an ax. Oil doesn't like higher rates, either: WTIC broke down today.

Stocks fell again today. Dow backed down 69.03 (0.33%) for a close at 20,855.73. S&P 500 lost 5.41 (0.23%) for a close at 2,362.98. In a failure portentous for other stock indices, the small cap Russell 2000 index has crashed through support & its 20 & 50 DMAs. Glance at the chart right here,

'Twas a lonely day for silver & gold, but perhaps not all a loss. Silver chopped off 23.5¢ (1.3%) to 1725.7¢. Gold pruned $6.60 (0.5%) to a Comex close at $1,208.50.

Well, I reckon that makes me look like a triple-plated nat'ral born durn fool from Tennessee. Hey, wait! That's all I am anyway. Good thing about low expectations is that you're seldom disappointed.

Gold chart hides here,

Gold reached through that bowl lip line to touch the 50 day moving average at $1,209. Okay, we're all grown-ups here, we knew that was possible. This one grown-up, however, would not care to see gold dip below $1,200. That would be tacky & in bad taste. Better to see it climb above the bowl lip again, about $1,220.

Silver's snapshot is here,

Lo, now it has slid down the downtrend line form the July 2016 high, fell through that line today, and stopped where the neckline & 50 DMA run together, about 1725¢. That would be an apt place for silver to halt its slide.

Premium is the amount you have to pay above the gold or silver value of an item. If spot gold were $100 and a Krugerrand cost $110, it would have a 10% premium.

Premiums fascinate me because their waxing & waning tells us about demand. US 90% right now has a low premium -- 15¢/oz at wholesale -- which tells me there's little retail interest in silver right now. Likewise, the premiums on US $20 gold pieces have been steadily falling since 1998. Instead of a transitory change, this appears a major structural change in the market. The Boiler Room sales operations which used to push US$ 20s have mostly vanished, & $20s are not "rare" coins nyway- they minted jillions, & jillions survive. That has pulled support out from under the premium on $20s. Wholesalers today are offering MELT for lower grades and even for unslabbed uncirculated coins only $30 more. It appears the US $20 premium won't recover.

Which makes them a good candidate for a gold purchase right now, since you can buy them CHEAPER than gold American Eagles. I'd a lot rather have the classic American Eagle, Liberty or St. Gaudens type, than the American Eagle with its obverse copy of the old St. Gaudens, and reverse with the papa eagle flying home to the nest with his food stamps in his mouth.

This morning I was remembering Susan after our fourth or fifth child was born. I always tried to do something special for her that next day, & since she was no fan of hospital food, I improvised. I bought a wicker basket & went to the French bakery she loved & bought some baguettes, then got butter & raspberry jam and what cheese I could (a vain quest in the US back then) & I bought her some good German beer, because beer is great nutrition for nursing mothers & not just a breakfast drink. I sat there watching her eat with the same gusto she always applied to food she loved. Sun was streaming in the window.

I can't forget that picture. Thank God.

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
8-Mar-17 Price Change % Change
Gold, $/oz 1,208.50 -6.60 -0.54%
Silver, $/oz 17.26 -0.24 -1.34%
Gold/Silver Ratio 70.030 0.564 0.81%
Silver/Gold Ratio 0.0143 -0.0001 -0.80%
Platinum 948.20 -11.40 -1.19%
Palladium 772.40 -4.35 -0.56%
S&P 500 2,362.98 -5.41 -0.23%
Dow 20,855.73 -69.03 -0.33%
Dow in GOLD $s 356.74 0.76 0.21%
Dow in GOLD oz 17.26 0.04 0.21%
Dow in SILVER oz 1,208.54 12.29 1.03%
US Dollar Index 101.96 0.16 0.16%
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: 1,208.50      
GOLD Fine Tr.Oz. BID ASK $/oz
American Eagle 1.00 1,236.30 1,247.78 1,247.78
1/2 AE 0.50 621.86 636.28 1,272.55
1/4 AE 0.25 316.97 324.78 1,299.14
1/10 AE 0.10 126.79 132.33 1,323.31
Aust. 100 corona 0.98 1,175.69 1,184.69 1,208.62
British sovereign 0.24 286.61 299.61 1,272.79
French 20 franc 0.19 225.63 231.63 1,240.64
Krugerrand 1.00 1,219.38 1,229.38 1,229.38
Maple Leaf 1.00 1,218.50 1,231.50 1,231.50
1/2 Maple Leaf 0.50 694.89 634.46 1,268.93
1/4 Maple Leaf 0.25 308.17 323.27 1,293.10
1/10 Maple Leaf 0.10 128.10 131.73 1,317.27
Mexican 50 peso 1.21 1,443.85 1,454.85 1,206.65
.9999 bar 1.00 1,208.50 1,220.50 1,220.50
SPOT SILVER: 17.25      
SILVER Fine Tr.Oz. BID ASK $/oz
VG+ Morgan $B4 1905 0.77 22.50 26.00 33.99
VG+ Peace dollar 0.77 16.00 18.00 23.53
90% silver coin bags 0.72 12,079.93 12,437.43 17.40
US 40% silver 1/2s 0.30 4,895.53 5,045.53 17.10
100 oz .999 bar 100.00 1,714.50 1,739.50 17.40
10 oz .999 bar 10.00 173.95 178.95 17.90
1 oz .999 round 1.00 17.50 17.80 17.80
Am Eagle, 200 oz Min 1.00 18.25 19.50 19.50
SPOT PLATINUM: 948.20      
Plat. Platypus 1.00 943.20 988.20 988.20
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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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