"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Friday, October 12, 2018

Gold Rocks On to $1,230; McEwen Mining Update & Moly Outlook

Windfall Mill
Windfall Mine, Eureka, Nevada

Friday, October 12, 2018 AM


Target Gold Price: $1,215 per ounce Target Silver Price: $14.52 per ounce.

Morning Miners!

Oh, it's so good to witness gold leave the currency pack and be its old safe haven self again! Presently Comex gold is trading at $1,225.4 per pounce after peaking to $1,230 yesterday. Here's how I told the story to Kitco News this morning:

Gold had a Tiger Woods comeback this week. The yellow metal made championship gains not only in U.S. dollar value but against a broad array of assets including equities, commodities and key currencies. A greater than $40 per ounce move between intraday lows and highs demonstrated safe haven qualities not seen for months while alternative havens like the yen marched in place.

The rise of real rates in the U.S. remains a headwind for gold. Encouragingly, real rates remained stable through the tumultuous market week. Now slightly above 1% on a 10-year basis*, the same measure was only 0.4% a year ago. If inflation can keep pace with the rise in nominal Treasury yields, gold should fare well going forward given uncertainties surrounding a slowing global economy and trade tensions.

I am bullish gold believing the recovery from the double-bottom of August/September signals a reversal in fortune. However, it is likely gold will pullback some next week as equity markets rebound from their dramatic sell-off this week. It is likely gold will find footing at $1,215 per ounce with silver following to $14.52. 

* real 10-year rate is now 1.03%

Not a bad way to end the week. There is also some good news from McEwen Mining and a positive outlook from General Moly on moly oxide prices (see below).

This mornings' price action:

Comex gold (12/18 contract) $1,225.4 per ounce, 
Comex silver (12/18 contract) $14.705 per ounce
Comex copper (12/18/ contract) $2.8230 per pound

Importantly, the correlation of Comex gold price and Chinese yuan (USD/CNY) appears to have broken down - gold is a free agent now in a bullish environment.

Have a relaxing weekend - you deserve it!

McEwen Mining Update

McEwin Mining (MUX) released their third quarter results yesterday:


Gold Bar mine construction "is advancing on schedule for completion by the end of 2018, targeting production in Q1 2019. Activities at Gold Bar in Q3 focused on completion of the heap leach pad and crushing circuit, and advancing the process facility. All major equipment and bulk materials are either on site or purchased. Engineering for the project is complete and 97% of contracts are awarded. During the first three years of operation beginning with 2019, Gold Bar is projected to produce 55,000, 74,000 and 68,000 ounces of gold respectively."

The best to the Gold Bar team! 

McEwen Mining (MUX) shares are enjoying some fresh mountain air above two bucks. 

Currently $2.18 per share

Moly Oxide Price Outlook

General Moly (GMO) provided an outlook for moly oxide prices yesterday:


Bruce D. Hansen, Chief Executive Officer of General Moly, said, “We believe that industrial metal prices are coming off their lows. The moly price has been range-bound between the high $11s and low $12s since mid-July. With the strong U.S. economy and developed countries firmly in the late stage business cycle supportive of metal demand, we believe we have the makings of an industrial metal recovery that is the rising tide to lift all ships and further boost moly. The continued strong demand from stainless steel and the oil and gas industry, especially the rapidly expanding global liquid natural gas sector, underpin the strongest year in four years for moly prices.”

General Moly (GMO) shares continue to demonstrate stability in current wobbly markets.

Latest press release [Update 10/15/2018]


Currently $0.3499 per share


Inflation Watch

Inflation expectations made a new 2018 high April 23rd above a  trend lines of higher lows (dotted lines, click on chart for larger size). After a sharp dip last on May 29th, expectations recovered, and moved more or less sideways. There is a hint now of slowly accelerating inflation (please see note).


10-year Inflation Expectations

Note: In the above chart inflation expectations peaked at 2.14% February 2nd but were surpassed April 23rd at 2.18%. May 29th dramatically broke the trend line of higher-lows falling to 2.04%. This decline recovered to 2.12%, retreated, recovered and then popped to 2.15% two weeks ago. This Wednesday expectations were 2.16%. New trend line of higher-lows is shown in dark blue; older trend line, in light blue. Note that present trend now extends to the June 21, 2017 low. Interesting to note that lower-highs from April 23rd intersect higher-lows (solid blue lines). We have broken out from this triangular consolidation.

Interest rates and inflation numbers going forward are greatly influenced by central bank policy worldwide. This Kitco commentary discusses what some of the moving parts are as well as useful indicators - watch the U.S. Dollar Index (DXY) and euro/yen cross rate:

The Gartman Gold Trade Revisited (Kitco News, 2/14/2018)

Several of the charts in this column are updated below.

 Old Glory
Eureka, Nevada

Scorecard 

Here's a scorecard on where we stand with some of our favorite metals. 

Intraday highs on the Comex futures exchange: 

Gold $1,370.5 per ounce January 25, 2018 (April 2018 contract)
Silver $18.160 per ounce September 8, 2017 (Continuous chart))
Copper $3.3335 per pound ($7,349 per tonne) December 28, 2017 (May 2018 contract)

Intraday lows on the Comex exchange:

Gold $1,167.1 per ounce August 16, 2018 (December 2018 contract)
Silver $14.315 per ounce August 15, 2018 (September 2018 contract)
Copper $2.552 per pound ($5,626 per tonne) August 15, 2018 (September 2018 contract)


Comex copper is presently trading slightly up from last week at $2.8230 per pound ($6,135 per tonne), now 15.3% below December's high. Improving global growth had kept the red metal above the key $3 per pound. Initial trade war fears dipped the red metal below this mark but copper then rebounded above $3. Current trade war tensions with China and deteriorating economic conditions there coupled with a strong U.S. dollar have sent the red metal plummeting. Improving perceptions on the severity of the trade issues has moved copper price away from bear territory (i.e. down 20%). There is some optimism ahead of a planned meeting with President Trump and Premier Xi Jinping in November.

Total copper stored in LME and Nymex warehouses is 0.340 million tonnes, well below the 0.5 million tonne mark of earlier this year.

LME inventories are still declining again after a run-up in August:



It is instructive to keep our eyes on the Nymex inventories which are behind the LME and also falling (LME 173,500 versus Nymex 166,923 tonnes):



My Input to Kitco News 

Here's how I saw the weekly price action as told to the Kitco News Weekly Gold Survey (also included above in the headline comments):

Target gold price $1,215 per ounce. Target silver price $14.52 per ounce.

Gold had a Tiger Woods comeback this week. The yellow metal made championship gains not only in U.S. dollar value but against a broad array of assets including equities, commodities and key currencies. A greater than $40 per ounce move between intraday lows and highs demonstrated safe haven qualities not seen for months while alternative havens like the yen marched in place.

The rise of real rates in the U.S. remain a headwind for gold. Encouragingly, real rates remained stable through the tumultuous market week. Now slightly above 1% on a 10-year basis*, the same measure was only 0.4% a year ago. If inflation can keep pace with the rise in nominal Treasury yields, gold should fare well going forward given uncertainties surrounding a slowing global economy and trade tensions.

I am bullish gold believing the recovery from the double-bottom of August/September signals a reversal in fortune. However, it is likely gold will pullback some next week as equity markets rebound from their dramatic sell-off this week. It is likely gold will find footing at $1,215 per ounce with silver following to $14.52. 

* real 10-year rate is now 1.03%

[please see Weekly Summary Chart]

Additional Note:

The fate of the Chinese yuan remains a key tell for gold and copper; a material drop in valuation could impact both negatively. Something to watch: the yuan has been dramatically weakening since mid-April but appears to be stabilizing.

The yuan stabilized below 7 USD/CNY for 2017 and started stronger in the new year followed by a weakening trend. The yuan is now above the 6.9-level at 6.9154 USD/CNY putting a lot of daylight above the March 26th low (i.e. much stronger level) of 6.2342. A 1-month yuan volatility of 0.37% is artificially low since the currency was frozen during last week's holiday. It is normally something else to watch compared to 1-month volatilities of euro and yen*

* the euro & yen 1-month volatilites are 0.87% & 0.58% respectively; Comex gold 1-month volatility is an elevated 0.83%


Weekly Summary  for October 12, 2018 AM 


(click on table for larger size)

Yearly Summary for 2017


(click on table for larger size)

Comex gold gained nearly 14% for the year but was outpaced by Comex copper that enjoyed a 32% uptick in price. Comex silver lagged both for a  respectable 7.2% gain. Overall, gold gained 12% on the broader Bloomberg Commodity Index (BCOMTR:IND) which includes everything from crude oil to things that oink. In terms of major currencies, gold in terms of yen advanced almost 10% but slipped 0.4% relative to the strengthening euro.

Although gold slipped 5% in value relative to the S&P 500 it was not a bad year at all for the yellow metal!



Gold Price Revised Outlook for 2018:

My Comex gold range for 2017 was $1,250 to $1,400. We closed 2017 comfortably above $1,300 at $1,309.3 (February contract).

Let's assume 2018, like 2017, is a mix of buoyant market expectations and rising rates with occasional geopolitical, political and economic shocks. Gold will feel the headwinds of the former and enjoy price spikes in times of market stress. My latest revised range given the strong correlation with falling currencies compared to a strong U.S. dollar is a  $1,150 floor with highs not exceeding $1,380 per ounce. 

2018 will prove a less bullish period for gold than last year with higher interest rates in the U.S.  Inflation will be another key factor to monitor, it has been on the rise but now may be moderating (see chart above in discussion). 

The difference between interest rates and inflation expectations drives gold price; if the former leads the latter, there could be stiff headwinds for the lustrous metal. A trade war that results in slower growth and higher inflation could be potentially very bullish for gold.

Here's the beer bet for 2018: Gold will fall below $1,220 before rising above $1,380. We ended 2017 in the middle of that range with prices just above $1,300 - a fair starting point [Gold bet won Thursday July 19]

Important charts to watch remain the gold-to-S&P500 or AUSP (see "Chart to Watch" below) and gold in terms of major currencies euro and Japanese yen (directly below). An explanation of the charts below is given in this Kitco News column:

The Gartman Gold Trade Revisited (Kitco News, 2/14/2018)

Gold value for all three currencies is catching a leg higher after a double-bottom for gold in U.S. dollar terms (August 17th & September 27th) 

Click on the image for a larger size:


Gold in euro & yen terms with margin above 2013 lows

Divergence has resumed for gold in terms of euro compared to yen:



Gold euro/yen spread widens again in 2018

Note for currency buffs: Value parity in the above chart occurs when the EUR/JPY cross rate is 139.24; something to watch for - presently 129.54 

Chart to Watch

Here's a chart to watch for 2018. Click on the image for a larger size:


Gold-to-S&P 500 Ratio

An important gold ratio is gold-to-S&P500 or AUSP. The ratio bottomed in early-December of 2015 and reversed to a bullish trend, peaking February 11, 2016 (0.6849). It bottomed December 20, 2016 (0.4973) trended higher but then bearishly bottomed again December, 12, 2017 (0.4661) and again September 27, 2018 (0.4063). Currently this AM the AUSP is at 0.4430, an impressive 9% above the September 27th low. 

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted.

Friday, October 5, 2018

Gold $1,209 on Solid Jobs Report; Soaring Interest Rates - Ouch!

Old School Euclid Haul Truck
Windfall Mine (photo Eric Pastorino)
Eureka, Nevada

Friday, October 5, 2018 AM


Chinese Yuan Reversal Is Bullish Gold (Richard Baker, Kitco News, 8/27/2018)


The Mystery of Gold and the Chinese Yuan (Richard Baker, Kitco News, 7/31/2018)

Target Gold Price: $1,210 per ounce Target Silver Price: $14.74 per ounce.


Morning Miners!

The monthly jobs report rolled in at 5:30 Eureka Time. After some head scratching, I believe the news is good, perhaps very good. Comex gold briefly popped to $1,209.0 upon the release, now trading at $1,206.0 per ounce.

Hurricane Florence was a complicating factor so September new jobs came in at 135,000 and far below economists' expectation of 180,000. However, July and August numbers were revised upwards by a whopping 87,000.  The headline unemployment, taken by a separate survey, was a stunning 3.7% - the lowest number since the 1969 Camaro.


That's 49 years ago for the old timers that still dream about those days.

The average monthly employment gain over the last 12 months is 201,000. Average hourly earnings were also up a healthy 0.3% to $27.24 an hour. My rule-of-thumb is bump up of greater than 0.1% is encouraging and may come with a whiff of inflation.

Cable News talking head reaction to these numbers was mostly positive, "evidence of sustained expansion", "exceptional revisions" and "a Goldilocks scenario." 

On a more sobering note, yields on U.S Treasuries soared this week putting the 10-year above 3.1% and the 30-year above 3.25%. Higher government rates benchmark consumer debt so this puts some concern in your pocket book. For example, fixed-rate home loans track Treasuries; the 10-year note affects 15-year conventional loans while the 30-year bond affects 30-year loans.

There are two sides to this. The positive is that a healthy growing economy naturally demands and can afford higher interest rates. A darker interpretation is that foreign investment interest in buying U.S. Treasuries is waning. Both are true, it's the balance of these factors that needs monitoring. For a long time, negative interest rates in Europe and elsewhere brought a lot of foreign investment into the treasury market driving prices up. This kept U.S interest rates low (higher prices result in lower yields). Divergence in Central bank policy and currency rates have made this trade less desirable. In addition, some large holders of U.S. debt like China are now net sellers.

On the short end, the Federal Reserve has seen little reason to slow their trajectory of raising the Fed funds rate with another bump up just last month (the benchmark interest rate is now in a range of 2% to 2.25%). The prime rate, which is used to set Home Equity Line of Credit (HELOC) interest payments, tracks the Fed rate.

What does all this do to gold prices moving forward?

Here's how I explained things to Editor Allen Sykora of the Kitco News Weekly Gold Survey this morning:

Richard Baker, editor of the Eureka Miner Report, said Comex gold showed resilience trading above $1,200 an ounce despite a “solid” September jobs report, rising 10-year Treasury yields and 10-year real interest rates creeping higher. “At a minimum, I believe the near-term low is in for gold and the August-September double-bottom ($1,167.10 and $1,184.30, 12/18 contract) signals the yellow metal should trend higher from here,” Baker said.

“Why the optimism? Although normally a headwind for gold, yields marching higher will become an increasing drag on domestic equities, which remain near all-time highs. The stranglehold of rising stocks and falling gold prices may finally be near a turning point allied by gradually accelerating inflation in the U.S.”

My full report is given below.

This mornings' price action:

Comex gold (12/18 contract) $1,206.0 per ounce, 
Comex silver (12/18 contract) $14.695 per ounce
Comex copper (12/18/ contract) $2.7830 per pound

Importantly, the correlation of Comex gold price and Chinese yuan (USD/CNY) continues as the Japanese yen (USD/JPY) and euro (EUR/USD) now play a part too. No chart this week because the Chinese are on holiday. Elephant returns to the room Monday.

[Chinese on Holiday]

"So goes the yuan goes, so goes gold."

For background on the gold/yuan connection, please read my latest Kitco News commentaries... 

Chinese Yuan Reversal Is Bullish Gold (Richard Baker, Kitco News, 8/27/2018)


The Mystery of Gold and the Chinese Yuan (Richard Baker, Kitco News, 7/31/2018)

Have a relaxing weekend - you deserve it!

Inflation Watch

Inflation expectations made a new 2018 high April 23rd above a  trend lines of higher lows (dotted lines, click on chart for larger size). After a sharp dip last on May 29th, expectations recovered, and moved more or less sideways. There is a hint now of slowly accelerating inflation (please see note).


10-year Inflation Expectations

Note: In the above chart inflation expectations peaked at 2.14% February 2nd but were surpassed April 23rd at 2.18%. May 29th dramatically broke the trend line of higher-lows falling to 2.04%. This decline recovered to 2.12%, retreated, recovered and then popped to 2.15% two weeks ago. This Wednesday expectations were 2.16%. New trend line of higher-lows is shown in dark blue; older trend line, in light blue. Note that present trend now extends to the June 21, 2017 low. Interesting to note that lower-highs from April 23rd intersect higher-lows (solid blue lines). We have broken out from this triangular consolidation.

Interest rates and inflation numbers going forward are greatly influenced by central bank policy worldwide. This Kitco commentary discusses what some of the moving parts are as well as useful indicators - watch the U.S. Dollar Index (DXY) and euro/yen cross rate:

The Gartman Gold Trade Revisited (Kitco News, 2/14/2018)

Several of the charts in this column are updated below.

 Old Glory
Eureka, Nevada

Scorecard 

Here's a scorecard on where we stand with some of our favorite metals. 

Intraday highs on the Comex futures exchange: 

Gold $1,370.5 per ounce January 25, 2018 (April 2018 contract)
Silver $18.160 per ounce September 8, 2017 (Continuous chart))
Copper $3.3335 per pound ($7,349 per tonne) December 28, 2017 (May 2018 contract)

Intraday lows on the Comex exchange:

Gold $1,167.1 per ounce August 16, 2018 (December 2018 contract)
Silver $14.315 per ounce August 15, 2018 (September 2018 contract)
Copper $2.552 per pound ($5,626 per tonne) August 15, 2018 (September 2018 contract)

Comex copper is presently trading only slightly lower than last week at $2.7830 per pound ($6,135 per tonne), now 16.5% below December's high. Improving global growth had kept the red metal above the key $3 per pound. Initial trade war fears dipped the red metal below this mark but copper then rebounded above $3. Current trade war tensions with China and deteriorating economic conditions there coupled with a strong U.S. dollar have sent the red metal plummeting. Improving perceptions on the severity of the trade issues has moved copper price away from bear territory (i.e. down 20%). Supply restrictions have supported prices recently and Chinese traders are away on holiday this week.

Total copper stored in LME and Nymex warehouses is 0.364 million tonnes, well below the 0.5 million tonne mark of earlier this year.

LME inventories are still declining again after a run-up in August:



It is instructive to keep our eyes on the Nymex inventories which are behind the LME and falling (LME 194,175 versus Nymex 170,177 tonnes):



My Input to Kitco News 

Here's how I saw the weekly price action as told to the Kitco News Weekly Gold Survey (also included above in the headline comments):

Target gold price $1,210 per ounce. Target silver price $14.74 per ounce.

The good news for Comex gold this morning is its resilience above the $1,200-level given a solid September jobs report, soaring 10-year Treasury yields and 10-year real rates creeping higher*. At a minimum, I believe the near-term low is in for gold and the August-September double-bottom ($1,167.1 & $1,184.3, 12/18 contract) signals the yellow metal should trend higher from here.

Why the optimism? Although normally a headwind for gold, yields marching higher will become an increasing drag on domestic equities which remain near all-time highs. The stranglehold of rising stocks and falling gold prices may finally be near a turning point allied by gradually accelerating inflation in the U.S.

The elephant that is not in the room is China. When traders there return from week-long holiday, it will be important to monitor the yuan and copper prices. Gold has been highly correlated with the Chinese currency since this spring, will that relation also reverse? Copper prices, currently supported by supply constraints, have been held back by a slowing global economy ex-U.S. - will the red metal and gold now move in opposite directions**? 

 Even with these questions, I remain cautiously bullish that gold will find comfort at the $1,210 level next week with silver following slightly higher to $14.74 

* real 10-year rate is now above 1% 
** the 1-month rolling correlation of gold and copper is currently near zero

[please see Weekly Summary Chart]

Additional Note:

The fate of the Chinese yuan remains a key tell for gold and copper; a material drop in valuation could impact both negatively. Something to watch: the yuan has been dramatically weakening since mid-April but appears to be stabilizing.

The yuan stabilized below 7 USD/CNY for 2017 and started stronger in the new year followed by a weakening trend. The yuan is now above the 6.8-level at 6.8679 USD/CNY putting a lot of daylight above the March 26th low (i.e. much stronger level) of 6.2342. However the yuan has been frozen at that level all week because the Chinese are on holiday. A 1-month yuan volatility of TBD% until next week- something else to watch compared to 1-month volatilities of euro and yen*

* the euro & yen 1-month volatilites are 0.72% & 0.85% respectively; Comex gold 1-month volatility is a low 0.50%


Weekly Summary  for October 05,2018 AM 


(click on table for larger size)

Yearly Summary for 2017


(click on table for larger size)

Comex gold gained nearly 14% for the year but was outpaced by Comex copper that enjoyed a 32% uptick in price. Comex silver lagged both for a  respectable 7.2% gain. Overall, gold gained 12% on the broader Bloomberg Commodity Index (BCOMTR:IND) which includes everything from crude oil to things that oink. In terms of major currencies, gold in terms of yen advanced almost 10% but slipped 0.4% relative to the strengthening euro.

Although gold slipped 5% in value relative to the S&P 500 it was not a bad year at all for the yellow metal!



Gold Price Revised Outlook for 2018:

My Comex gold range for 2017 was $1,250 to $1,400. We closed 2017 comfortably above $1,300 at $1,309.3 (February contract).

Let's assume 2018, like 2017, is a mix of buoyant market expectations and rising rates with occasional geopolitical, political and economic shocks. Gold will feel the headwinds of the former and enjoy price spikes in times of market stress. My latest revised range given the strong correlation with falling currencies compared to a strong U.S. dollar is a  $1,150 floor with highs not exceeding $1,380 per ounce. 

2018 will prove a less bullish period for gold than last year with higher interest rates in the U.S.  Inflation will be another key factor to monitor, it has been on the rise but now may be moderating (see chart above in discussion). 

The difference between interest rates and inflation expectations drives gold price; if the former leads the latter, there could be stiff headwinds for the lustrous metal. A trade war that results in slower growth and higher inflation could be potentially very bullish for gold.

Here's the beer bet for 2018: Gold will fall below $1,220 before rising above $1,380. We ended 2017 in the middle of that range with prices just above $1,300 - a fair starting point [Gold bet won Thursday July 19]

Important charts to watch remain the gold-to-S&P500 or AUSP (see "Chart to Watch" below) and gold in terms of major currencies euro and Japanese yen (directly below). An explanation of the charts below is given in this Kitco News column:

The Gartman Gold Trade Revisited (Kitco News, 2/14/2018)

Gold value for all three currencies is catching a leg higher: 

Click on the image for a larger size:


Gold in euro & yen terms with margin above 2013 lows

Divergence has resumed for gold in terms of euro compared to yen:



Gold euro/yen spread widens again in 2018

Note for currency buffs: Value parity in the above chart occurs when the EUR/JPY cross rate is 139.24; something to watch for - presently 131.25 as yen per euro as old euro/yen spread divergence shows a possible breakdown.

Chart to Watch

Here's a chart to watch for 2018. Click on the image for a larger size:


Gold-to-S&P 500 Ratio

An important gold ratio is gold-to-S&P500 or AUSP. The ratio bottomed in early-December of 2015 and reversed to a bullish trend, peaking February 11, 2016 (0.6849). It bottomed December 20, 2016 (0.4973) trended higher but then bearishly bottomed again December, 12, 2017 (0.4661) and again September 27, 2018 (0.4063). Currently this AM the AUSP is at 0.4147 up from last week's new low and above the lower boundary of a downward trending channel (revised 8/10, green/red dotted lines). 

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted.

Friday, September 28, 2018

Gold Dips to $1,184, Double-Bottom Soon? Silver Gets Its Mojo $14.55

Eureka-Windfall stock issued to partner G.S. Greenwood (1910)
Courtesy of Eureka Sentinel Museum
Eureka, Nevada

Friday, September 28, 2018 AM


Chinese Yuan Reversal Is Bullish Gold (Richard Baker, Kitco News, 8/27/2018)


The Mystery of Gold and the Chinese Yuan (Richard Baker, Kitco News, 7/31/2018)

Target Gold Price: $1,180 per ounce Target Silver Price: $14.44 per ounce.


Morning Miners!

Comex gold got a drubbing this week falling to $1,184.3 per ounce this morning. Am I worried? Not really. There were a lot of headwinds for the yellow metal with rising interests in the U.S. and a Fed decision to bump short term rates another 1/4 percent.

The bright spot was the resilience of Comex silver that has begun to regain value from gold. Notably silver this morning at $14.55 per ounce is higher than last week even though gold had a hiccup.

Here's how I explained things to Kitco News  this morning:

Importantly, gold is still in a losing battle with U.S. equities that are down but near recent records. The yellow metal has been in a downward channel relative to the S&P 500 since the Presidential election - a remarkable 475-market day slide [please see last chart in this blog].

U.S. equities continue to march higher even as the U.S. Federal Reserve raised rates this week and the 10-year is above 3%. There will come a day when rising rates and stocks are incompatible, which should favor gold if U.S. inflation keeps pace with interest rates. Encouragingly, the 10-year real rates are steady to slightly lower than last week. 

My full report is given below.

I believe gold will fall further but not as far as the August 16th low of $1,167.1 - my sense is that the bottom of this shaft is somewhere around the $1,180-level. This is near the 2013 low where there is a lot of support [please see third chart at the end of this blog]. Once a double-bottom is established (mid-August being the first), Comex gold will trend higher as stocks seek some lower P/E equilibrium with rising rates.

This mornings' price action:

Comex gold (12/18 contract) $1,188.7 per ounce, 
Comex silver (12/18 contract) $14.550 per ounce
Comex copper (12/18/ contract) $2.7930 per pound

Importantly, the correlation of Comex gold price and Chinese yuan (USD/CNY) continues as the Japanese yen (USD/JPY) and euro (EUR/USD) now play a part too. You don't need to understand all the statistical gibberish on these charts to see the closeness of gold price to a gold model based on these currencies (note shaded 3-month area, click on plots for larger image):


"So goes the yuan goes, so goes gold."

For background on the gold/yuan connection, please read my latest Kitco News commentaries... 

Chinese Yuan Reversal Is Bullish Gold (Richard Baker, Kitco News, 8/27/2018)


The Mystery of Gold and the Chinese Yuan (Richard Baker, Kitco News, 7/31/2018)

Here's the latest gold-to-silver (GSR) ratio chart. The peak occurred September 11th (85.1) - a falling GSR is good for silver going forward.



Have a relaxing weekend - you deserve it!

Inflation Watch

Inflation expectations made a new 2018 high April 23rd above a  trend lines of higher lows (dotted lines, click on chart for larger size). After a sharp dip last on May 29th, expectations recovered, and are have been moving more or less sideways. Last week signaled a breakout, higher inflation on the way? [see Note]. 


10-year Inflation Expectations

Note: In the above chart inflation expectations peaked at 2.14% February 2nd but were surpassed April 23rd at 2.18%. May 29th dramatically broke the trend line of higher-lows falling to 2.04%. This decline recovered to 2.12%, retreated, recovered and then popped to 2.15% last week. This Wednesday expectations were 2.14%. New trend line of higher-lows is shown in dark blue; older trend line, in light blue. Note that present trend now extends to the June 21, 2017 low. Interesting to note that lower-highs from April 23rd intersect higher-lows (solid blue lines). It appears we have broken out from this triangular consolidation.

Interest rates and inflation numbers going forward are greatly influenced by central bank policy worldwide. This Kitco commentary discusses what some of the moving parts are as well as useful indicators - watch the U.S. Dollar Index (DXY) and euro/yen cross rate:

The Gartman Gold Trade Revisited (Kitco News, 2/14/2018)

Several of the charts in this column are updated below.

 Old Glory
Eureka, Nevada

Scorecard 

Here's a scorecard on where we stand with some of our favorite metals. 

Intraday highs on the Comex futures exchange: 

Gold $1,370.5 per ounce January 25, 2018 (April 2018 contract)
Silver $18.160 per ounce September 8, 2017 (Continuous chart))
Copper $3.3335 per pound ($7,349 per tonne) December 28, 2017 (May 2018 contract)

Intraday lows on the Comex exchange:

Gold $1,167.1 per ounce August 16, 2018 (December 2018 contract)
Silver $14.315 per ounce August 15, 2018 (September 2018 contract)
Copper $2.552 per pound ($5,626 per tonne) August 15, 2018 (September 2018 contract)

Comex copper is presently trading at a much healthier $2.7930 per pound ($6,158 per tonne), now 16.2% below December's high. Improving global growth had kept the red metal above the key $3 per pound. Initial trade war fears dipped the red metal below this mark but copper then rebounded above $3. Current trade war tensions with China and deteriorating economic conditions there coupled with a strong U.S. dollar have sent the red metal plummeting. Improving perceptions on the severity of the trade issues has moved copper price away from bear territory (i.e. down 20%). 

Total copper stored in LME and Nymex warehouses is 0.385 million tonnes, well below the 0.5 million tonne mark of earlier this year.

LME inventories are still declining again after a run-up in August:



It is instructive to keep our eyes on the Nymex inventories which are behind the LME and falling (LME 210,900 versus Nymex 174,449 tonnes):



My Input to Kitco News 

Here's how I saw the weekly price action as told to the Kitco News Weekly Gold Survey (also included above in the headline comments):

Target gold price $1,180 per ounce. Target silver price $14.44 per ounce.

The U.S dollar got a boost this week on a weakening yen and euro, the latter due to an Italian budgetary exercise that far exceeded EU expectations. This put additional pressure on gold prices. Importantly, gold is still in a losing battle with U.S. equities that are down but near recent records. The yellow metal has been in a downward channel relative to the S&P 500 since the Presidential election - a remarkable 475-market day slide.

U.S. equities continue to march higher even as the U.S. Federal Reserve raised rates this week and the 10-year is above 3%. There will come a day when rising rates and stocks are incompatible, which should favor gold if U.S. inflation keeps pace with interest rates. Encouragingly, the 10-year real rates are steady to slightly lower than last week. 

Gold still remains highly correlated with the Chinese yuan. Although somewhat weaker than last week, the yuan has stabilized around 6.84-6.88 USDCNY, an improving sign for gold in U.S. dollars. 

I believe Comex gold will put in a double-bottom near the $1,180-level before rising higher; the last low was $1,167.1 on August 16th. It is notable that silver has caught a gear as the gold-to-silver ratio compresses keeping it above $14.4 per ounce even as gold prices languish.

[please see Weekly Summary Chart]

Additional Note:

The fate of the Chinese yuan remains a key tell for gold and copper; a material drop in valuation could impact both negatively. Something to watch: the yuan has been dramatically weakening since mid-April but appears to be stabilizing.

The yuan stabilized below 7 USD/CNY for 2017 and started stronger in the new year followed by a weakening trend. The yuan is now above the 6.8-level at 6.8735 USD/CNY putting a lot of daylight above the March 26th low (i.e. much stronger level) of 6.2342. A 1-month yuan volatility of 0.23% is below major currency levels and less than gold - something else to watch compared to 1-month volatilities of euro and yen*

* the euro & yen 1-month volatilites are 0.58% & 0.69% respectively; Comex gold 1-month volatility is 0.49%

Weekly Summary  for September 28, 2018 AM 


(click on table for larger size)

Yearly Summary for 2017


(click on table for larger size)

Comex gold gained nearly 14% for the year but was outpaced by Comex copper that enjoyed a 32% uptick in price. Comex silver lagged both for a  respectable 7.2% gain. Overall, gold gained 12% on the broader Bloomberg Commodity Index (BCOMTR:IND) which includes everything from crude oil to things that oink. In terms of major currencies, gold in terms of yen advanced almost 10% but slipped 0.4% relative to the strengthening euro.

Although gold slipped 5% in value relative to the S&P 500 it was not a bad year at all for the yellow metal!



Gold Price Revised Outlook for 2018:

My Comex gold range for 2017 was $1,250 to $1,400. We closed 2017 comfortably above $1,300 at $1,309.3 (February contract).

Let's assume 2018, like 2017, is a mix of buoyant market expectations and rising rates with occasional geopolitical, political and economic shocks. Gold will feel the headwinds of the former and enjoy price spikes in times of market stress. My latest revised range given the strong correlation with falling currencies compared to a strong U.S. dollar is a  $1,150 floor with highs not exceeding $1,380 per ounce. 

2018 will prove a less bullish period for gold than last year with higher interest rates in the U.S.  Inflation will be another key factor to monitor, it has been on the rise but now may be moderating (see chart above in discussion). 

The difference between interest rates and inflation expectations drives gold price; if the former leads the latter, there could be stiff headwinds for the lustrous metal. A trade war that results in slower growth and higher inflation could be potentially very bullish for gold.

Here's the beer bet for 2018: Gold will fall below $1,220 before rising above $1,380. We ended 2017 in the middle of that range with prices just above $1,300 - a fair starting point [Gold bet won Thursday July 19]

Important charts to watch remain the gold-to-S&P500 or AUSP (see "Chart to Watch" below) and gold in terms of major currencies euro and Japanese yen (directly below). An explanation of the charts below is given in this Kitco News column:

The Gartman Gold Trade Revisited (Kitco News, 2/14/2018)

Note fall in gold value for all three currencies: 

Click on the image for a larger size:


Gold in euro & yen terms with margin above 2013 lows

Divergence resumed for gold in terms of euro compared to yen but there may be a reversal in the works:


Gold euro/yen spread widens again in 2018

Note for currency buffs: Value parity in the above chart occurs when the EUR/JPY cross rate is 139.24; something to watch for - presently 132.26 as yen per euro as old euro/yen spread divergence shows a possible breakdown.

Chart to Watch

Here's a chart to watch for 2018. Click on the image for a larger size:


Gold-to-S&P 500 Ratio

An important gold ratio is gold-to-S&P500 or AUSP. The ratio bottomed in early-December of 2015 and reversed to a bullish trend, peaking February 11, 2016 (0.6849). It bottomed December 20, 2016 (0.4973) trended higher but then bearishly bottomed again December, 12, 2017 (0.4661) and again September 27, 2018 (0.4069). Currently this AM the AUSP is at 0.4085 making a new low and challenging the lower boundary of a downward trending channel (revised 8/10, green/red dotted lines). 

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted.