"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, McEwen Mining (MUX) and General Moly (GMO). Please do your own research, markets can turn on you faster than a feral cat.

Friday, June 21, 2019

Gold on a Bull Run, $1,415 in Summer Pasture; Silver Breakout?

Gold Country - Roberts Creek Road
Eureka, Nevada 

Friday, June 21, 2019 AM

Next Week Target Gold Price: $1,400 per ounce, Target Silver Price: $15.33 per ounce.
High/Low range: $1,420/$1,380 per ounce

Here's an easy-to-understand overview on gold (32 slides, read explanation below each slide): History of gold and which countries have the most

An interesting article on the role of arsenic in the formation of Carlin-type Nevada gold deposits: Resolving the 'invisible' gold puzzle (May 1, 2019, Helmholtz Association of German Research Centres)

Happy Summer Solstice Miners!

I'll be on the road again soon so this will be my last report until Friday, July 26.

This week's markets experienced an avalanche of news propelling the S&P 500 to new records, gold to 6-year highs and the 10-year Treasury to yields below 2%. This morning Comex gold touched $1,415.40 per ounce in early trading. Currently, Gold sits at $1,401.5. Comex copper thankfully got a nearly 3% bump from last Friday. At $2.7055 per pound, the red metal is very close to $6,000 per tonne which this report has identified as an entry point for price recovery (see below).

A rising tide lifts all boats, so good news for local mining companies [late Friday update]:

Barrick Gold Corp. (GOLD) $15.60 per share up 1.96% (closing price)
McEwen Mining (MUX) $1.790 per share up 2.87%  (closing price)
Prophecy Development Corp. (PRPCF) $0.1600 up 1.27% (closing price)
General Moly (GMO) $0.354 per share up 3.27%  (closing price)

The European Central Bank and the Federal Reserve signaled the possibility of a more accommodative monetary policy which gave a boost to gold and commodities on expectations of a weakening U.S. dollar. The central banks' dovish stance and optimism about the upcoming Xi/Trump meeting (June 28-29)  drove domestic equities higher. Escalating tensions in the Gulf of Oman elevated the yellow metal above the mercurial $1,400-level on a safe haven play but had little impact on stocks. 

How does one sort out this mix of conflicting forces? One clue lies in the re-emerging relation of the U.S. 10-year Treasury yield and the gold-to-copper ratio (GCR) which have demonstrated a very tight negative correlation in the past two months. Recent geopolitical concerns, slowing global growth and uncertainty about U.S./China trade relations have caused an increase in the GCR and decline in U.S. Treasury yields. As market participants run to safe havens like gold and U.S. Treasurys, they typically retreat from "risk-on" assets like copper. Rising gold and declining copper prices raise the GCR while higher bond prices produce lower yields.

This morning the GCR peaked at a historically elevated 518 pounds per ounce and 10-year yields plunged below 2% yesterday. Real rates dropped below 0.3% this morning, adding another bullish factor for higher gold prices.

This week, I wrote a Kitco commentary on the relation of 10-year Treasury yield and the GCR*:


Kitco Editor Allen Sykora carried my thoughts this morning in the Kitco News Weekly Gold Survey:

Richard Baker, editor of the Eureka Miner’s Report, looks for gold to be sideways around $1,400 an ounce. “I suspect, given the advances this week, that both gold and [Treasury] yields will consolidate around $1,400 and 2% next week, sensitive of course to any surprise coming from the G20 [Group of 20] meeting, Baker said. “It's noteworthy that the gold-to-silver ratio peaked again, now above 91. This suggests that silver is historically very, very cheap relative to gold. It is likely at these levels that silver will stabilize around $15.30 level but watch for a breakout higher.”

My complete input to Kitco News is given below.

*An updated Treasury yield model model looks like this (click on image for larger size):


3-Month Model: 10-yr Treasury Yields based on Gold Price

Keep the faith! My bottom line bet is that gold will go further up the stairs in 2019.

This mornings' price action:

Comex gold (6/19 contract) $1,401.5 per ounce, 
Comex silver (7/19 contract) $15.350 per ounce
Comex copper (7/19 contract) $2.7055 per pound

Have a good weekend!


Crossroads for Silver Remain

Comex silver is above $15 per ounce. 

The gold-to-silver ratio (GSR) set a new high this morning of 91.3 ounce per ounce. It is ready for a move down - bullish for silver if the Lustrous One recovers more territory. I've been saying this for some time, someday it will come to pass - hopefully soon.

At 91:1, silver is historically very, very cheap relative to gold!

The 10-year average GSR is much lower at 66.2 ounce per ounce.

Gold-to-Silver Ratio

Historical note:

If gold and silver are legal tender (see gold overview link below headline photo), then you have to come up with a set value for them and figure out which is more valuable than the other. In 1792, the U.S. fixed its price at 15:1. This means that 1 troy ounce — the long-used standard for measuring precious metals — of gold was worth 15 troy ounces of silver. Over the years, as this ratio has changed, precious metal investors have used it as a signal of when to buy.

Stay tuned.

Inflation Watch

Inflation expectations made a high April 23, 2018 above trend lines of higher lows (dotted lines, click on chart for larger size). Those trend lines were broken dramatically to the downside late last year and now struggle to recover.


10-year Inflation Expectations

Note: In the above chart inflation expectations peaked April 23, 2018 at 2.18%. May 29 broke a trend line of higher-lows. The older trend lines of higher-lows are shown in dark blue. Those trends extend from June 21, 2017 low of 1.66%. This week, expectations  fell below the January 3 low of 1.68% and the June 21, 2017 low (bottom red dashed line). This Wednesday expectations are rose slightly to 1.67%.

Many believe, including the ole Colonel, that gold price is more sensitive to inflation expectations than other measure of inflation. My January Kitco News commentary explains the importance of tracking "real rates" which are a function of inflation expectations:


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 these columns are updated in this report.

 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 (note new continuous chart baseline): 

Gold $1,365.4 per ounce (continuous chart April, 2018)
Silver $18.160 per ounce (continuous chart September 2017))
Copper $3.2955 per pound ($7,265 per tonne, continuous chart December 2017)



Comex copper bullishly rose 2.83% for the week on dovish signals from the Federal Reserve and ECB. Presently trading at $2.7055 per pound ($5,965 per tonne), the red metal is now 17.9% below the December 2017 high. Maintaining prices above $6,000 per tonne is a key benchmark to price recovery; above $6,500 is bullish. 

Improving global growth had kept the red metal above the key $3 per pound-level in 2017. Initial trade war fears in 2018 dipped the red metal below this mark but copper then rebounded above $3. Trade war tensions with China and deteriorating economic conditions there coupled with a strong U.S. dollar sent the red metal plummeting. Copper continues to suffer with a bleaker global growth forecast and an unresolved U.S./China trade conflict but lifted recently by dovish signals from central banks . 

Total copper stored in LME and Nymex warehouses is 0.248 million tonnes about one-half the 0.5 million tonne mark of early-2018. The Nymex warehouse tonnage is behind the LME and  below the 40,000 tonne mark.

LME inventories continue to bump up starting in late-May: 


It is important to keep our eyes on the Nymex inventories which are reversing higher but still way below the LME (LME 248,375 versus Nymex 30,600 tonnes):


My Input to Kitco News 

Next Week target gold price $1,400 per ounce. Target silver price $15.33 per ounce.

Here is my input to the Kitco News Weekly Gold Survey:

This week an avalanche of news propelled the S&P 500 to new records, gold to 6-year highs and the 10-year Treasury to yields below 2%. The European Central Bank and the Federal Reserve signaled the possibility monetary easing which gave a boost to gold and commodities on expectations of a weakening U.S. Dollar. The central banks dovish take and optimism about the upcoming Xi/Trump meeting drove domestic equities higher. Escalating tensions in the Gulf of Oman elevated the yellow metal above the mercurial $1,400-level on a safe haven play but had little impact on stocks. 

How does one sort this mix of conflicting forces? One clue lies in the re-emerging relation of the U.S. 10-year Treasury yield and the gold-to-copper ratio (GCR) which have demonstrated a very tight negative correlation in the past two months. Recent geopolitical concerns, slowing global growth and uncertainty about U.S./China trade relations have caused an increase in the GCR and decline in U.S. Treasury yields. As market participants run to safe havens like gold and U.S. Treasurys, they typically retreat from "risk-on" assets like copper. Rising gold and declining copper prices raise the GCR while higher bond prices produce lower yields. This morning the GCR has peaked at a historically elevated 518 pounds per ounce and 10-year yield plunged below 2% yesterday. Real rates dropped below 0.3% this morning, adding another bullish factor for higher gold prices.

I suspect, given the advances this week, that both gold and yields will consolidate around $1,400 and 2% next week, sensitive of course to any surprise coming from the G20 meeting.

It's noteworthy that the gold-to-silver ratio peaked again, now above 91. This suggests that silver is historically very, very cheap relative to gold. It is likely at these levels that silver will stabilize around $15.3-level but watch for a breakout higher. An exciting time for gold and silver market participants.

Additional Note:

The fate of the Chinese yuan remains a key tell for gold and copper; a material drop in valuation could impact copper negatively. Something to watch: the yuan dramatically weakened from mid-April 2018, strengthened and then weakened again this year.

The yuan stayed below 7.0 USD/CNY for 2018, starting stronger  and then followed by a weakening trend. The yuan is currently at 6.8686 USD/CNY and with a lot of daylight above the March 26, 2018 low (i.e. much stronger level) of 6.2342. 1-month yuan volatility is a low 0.26%. Something to watch compared to 1-month volatilities of euro, yen and gold.

The euro & yen 1-month volatilites are 0.54% & 0.54% respectively; Comex gold 1-month volatility is an elevated 2.33%.

Weekly Summary June 21, 2019



Yearly Summary for 2018


(click on table for larger size)

Although Comex gold price lost some steam in 2018 (down 2.1%) it made healthy gains on key commodities copper and oil (up 22.8% & 30.2%). Against the broader Bloomberg Commodity Index (BCOMTR:IND), it advanced a respectable 10.3%. 

Importantly the yellow metal outpaced the S&P 500 stock index by 4.3% making it a better investment than domestic stocks for 2019. This leaves gold it in a strong position for 2019.

Only the Japanese yen, an alternative safe haven, fared better by gaining 4.1% over gold for the year.

Yearly Summary for 2017


(click on table for larger size)

Comex gold gained nearly 14% for 2017 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 Outlook for 2019

*** Soon to be revised for 2019 (2H) ***

My Kitco Commentary on gold prices and real rates:


In addition to real rates, other important charts to monitor are 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 up dramatically for the week. Relative value has generally trended higher from a double-bottom in U.S. dollar terms (August 17 & September 27, 2018) 

Click on the image for a larger size:


Gold in euro & yen terms with margin above 2013 lows

Divergence continues 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 at 121.72, it is widely divergent from parity.

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 October 1, 2018 (0.4063). Currently this AM the AUSP is at 0.4752 and below the high of 0.5409 set at the close December 21, 2018. Importantly, the ratio has bullishly broke the upper rail again (dotted green line) of the downward trending channel.

Cheers,

Colonel Possum & Mariana



Photos by Mariana Titus if not otherwise noted.

Friday, June 14, 2019

Gold Rips $1,362 in Wee Hours; General Moly (GMO) Secures Water Rights

Time takes its toll on Ruby Hill (2014)
Eureka, Nevada 

Friday, June 14, 2019 AM

Next Week Target Gold Price: $1,360 per ounce, Target Silver Price: $15.09 per ounce.
High/Low range: $1,360/$1,317 per ounce

Here's an easy-to-understand overview on gold (32 slides, read explanation below each slide): History of gold and which countries have the most

An interesting article on the role of arsenic in the formation of Carlin-type Nevada gold deposits: Resolving the 'invisible' gold puzzle (May 1, 2019 , Helmholtz Association of German Research Centres)

Morning Miners!

I'm back stateside after taking my sweetheart Mariana to Europe to celebrate her birthday -  a benchmark number for total journey's around the sun!

The closest I got to markets since April 26th was an UBER ride past the historical Paris Bourse (which has since moved to EuroNext Paris) and whizzing by the LME copper warehouse in Rotterdam on a high speed train. Apparently, I've picked a good time to return - gold is on a tear. I wish the same were true for copper!


The yellow metal touched $1,362.2 per ounce on the Comex Exchange in the wee hours this morning. The red metal is still wallowing below $6,000 per tonne but up for the week; Comex copper is presently trading at $2.6380 per pound ($5,816 per tonne).

Kitco Editor Allen Sykora carried my thoughts this morning in the Kitco News Weekly Gold Survey:

Richard Baker, editor of the Eureka Miner’s Report, commented that not only has gold benefited from its role as a safe haven, but real interest rates remain suppressed given high demand for U.S. Treasury notes, which he noted is a bullish development for non-interest-bearing assets like gold.

“As oil prices have fallen on weakening demand, gold has proved resilient and, more recently, on the move higher,” Baker said. “A gold price model based on Brent [crude]*, 10-year real rates, [the] euro and Japanese yen demonstrates high fidelity since early March. That model suggests that Comex gold should return to this morning's highs closing above $1,360 per ounce next week. Silver should follow above the $15-per-ounce level.”

My complete input to Kitco News is given below.

The referenced gold model looks like this (click on image for larger size):


3-Month Gold Model Demonstrates High Fidelity

Keep the faith! My bottom line bet is that gold will go further up the stairs in 2019.

This mornings' price action:

Comex gold (6/19 contract) $1,347.3 per ounce, 
Comex silver (7/19 contract) $14.950 per ounce
Comex copper (7/19 contract) $2.6380 per pound

Have a good weekend!

*Additional note:

One explanation for Brent oil's relation with gold is that it has become a proxy for global slowdown given plunging demand. Gold has regained safe haven status even with a low inflation backdrop hence the tight negative correlation. Additionally, low 10-year real rates are supportive of gold.

Copper is a typical proxy for global growth but the correlations have been less dramatic than for Brent:

correlation            1-month             3-month

Gold/Brent           -0.9526               -0.8918
Gold/copper         -0.7509               -0.4208


General Moly Secures Water Rights

Monday General Moly (GMO) announced a major milestone for the Mt. Hope Project:


Bruce D. Hansen, Chief Executive Officer, said, 

“We are extremely pleased that the State Engineer has considered our applications and the efforts made to resolve the concerns and protests of third parties, including the ranchers and growers in the Kobeh Valley and Diamond Valley water basins, and the County of Eureka in once again approving our water rights. We maintain our commitment to the Eureka Producers’ Cooperative through the establishment of the Sustainability Trust to help Diamond Valley conserve water and enhance the viability of the agricultural community. The approval of our water applications represents a major milestone for the development of the Mt. Hope Project.”

GMO share price: $0.3611

Crossroads for Silver Remain

Comex silver is below $15 per ounce. 

The gold-to-silver ratio (GSR) above 90 is very near recently set new highs. It is ready for a move down - bullish for silver if the Lustrous One recovers more territory. I've been saying this for some time but...someday it will come to pass.

At 90:1, silver is historically very, very cheap relative to gold!

This morning the Comex GSR is 90.12. This chart shows the peak GSR was 90.97 June 10 (click for larger image size). The 10-year average GSR is much lower at 66.2 ounce per ounce.

Gold-to-Silver Ratio

Historical note:

If gold and silver are legal tender (see gold overview link below headline photo), then you have to come up with a set value for them and figure out which is more valuable than the other. In 1792, the U.S. fixed its price at 15:1. This means that 1 troy ounce — the long-used standard for measuring precious metals — of gold was worth 15 troy ounces of silver. Over the years, as this ratio has changed, precious metal investors have used it as a signal of when to buy.

Stay tuned.

Inflation Watch

Inflation expectations made a high April 23, 2018 above trend lines of higher lows (dotted lines, click on chart for larger size). Those trend lines were broken dramatically to the downside late last year and now struggle to recover.


10-year Inflation Expectations

Note: In the above chart inflation expectations peaked at 2.14% February 2, 2018 and then moved higher April 23 to 2.18%. May 29 broke a trend line of higher-lows falling to 2.04%. The older trend lines of higher-lows are shown in dark blue. Those trends extend from June 21, 2017 low of 1.66%. We were recovering from the January 3 low of 1.68% and are again below the level of November 27, 2017 (red dashed line). The Wednesday expectations are 1.71%.

Many believe, including the ole Colonel, that gold price is more sensitive to inflation expectations than other measure of inflation. My January Kitco News commentary explains the importance of tracking "real rates" which are a function of inflation expectations:


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 these columns are updated in this report.

 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 (note new continuous chart baseline): 

Gold $1,365.4 per ounce (continuous chart April, 2018)
Silver $18.160 per ounce (continuous chart September 2017))
Copper $3.2955 per pound ($7,265 per tonne, continuous chart December 2017)



Comex copper rose 0.40% for the week. Presently trading at $2.6380 per pound ($5,816 per tonne), the red metal is now 20.0% below the December 2017 high - technically in bear territory again. Maintaining prices above $6,000 per tonne is a key benchmark to price recovery; above $6,500 is bullish. 

Improving global growth had kept the red metal above the key $3 per pound-level in 2017. Initial trade war fears in 2018 dipped the red metal below this mark but copper then rebounded above $3. Trade war tensions with China and deteriorating economic conditions there coupled with a strong U.S. dollar sent the red metal plummeting. Copper continues to suffer with a bleaker global growth forecast and an unresolved U.S./China trade conflict. 

Total copper stored in LME and Nymex warehouses is 0.241 million tonnes and less than one-half the 0.5 million tonne mark of early-2018. The Nymex warehouse tonnage is behind the LME and now below the 40,000 tonne mark.

LME inventories thankfully got a bump up in late-May: 


It is important to keep our eyes on the Nymex inventories which are still falling (LME 210,900 versus Nymex 30,204 tonnes):


My Input to Kitco News 

Next Week target gold price $1,360 per ounce. Target silver price $15.09 per ounce.

Here is my input to the Kitco News Weekly Gold Survey:

Gold rallies in a conducive environment for moving higher as safe haven assets get a boost from tensions in the Gulf of Oman, slowing global growth and trade war uncertainty. Real rates* are also surpressed given high demand for U.S. Treasurys - a bullish development for noninterest bearing assets like gold. 

One striking and persistent correlation has been between gold and Brent crude oil, the latter being a proxy for global growth. As oil prices have fallen on weakening demand, gold has proved resilient and, more recently, on the move higher. A gold price model based on Brent, 10-year real rates, euro and Japanese yen demonstrates high fidelity since early-March (see attached). That model suggests that Comex gold should return to this morning's highs closing above $1,360 per ounce next week. Silver should follow above the $15 per ounce-level.

It is noteworthy that key gold ratios are very high emphasizing how inexpensive commodities have become relative to the lustrous metal. The gold-to-silver ratio is greater than 90, a historic level. The gold-to-copper ratio is above 500 pounds per ounce which signals more market turbulence ahead. The gold-to-WTI ratio is also elevated although not extreme topping 25 barrels per ounce. 

An exciting time for gold market participants.

* real 10-year rate is now 0.41%; down 12 bps on a 1-month basis, down 38 bps on a 1-year basis (source: Bloomberg News)

Additional Note:

The fate of the Chinese yuan remains a key tell for gold and copper; a material drop in valuation could impact copper negatively. Something to watch: the yuan dramatically weakened from mid-April 2018, strenghtened and then weakened again this year.

The yuan stayed below 7.0 USD/CNY for 2018, starting stronger  and then followed by a weakening trend. The yuan is currently at 6.9231 USD/CNY and with a lot of daylight above the March 26, 2018 low (i.e. much stronger level) of 6.2342. 1-month yuan volatility is a very low 0.16%. Something to watch compared to 1-month volatilities of euro, yen and gold.

The euro & yen 1-month volatilites are 0.56% & 0.69% respectively; Comex gold 1-month volatility is an elevated 2.10%.

Weekly Summary June 14, 2019



Yearly Summary for 2018


(click on table for larger size)

Although Comex gold price lost some steam in 2018 (down 2.1%) it made healthy gains on key commodities copper and oil (up 22.8% & 30.2%). Against the broader Bloomberg Commodity Index (BCOMTR:IND), it advanced a respectable 10.3%. 

Importantly the yellow metal outpaced the S&P 500 stock index by 4.3% making it a better investment than domestic stocks for 2019. This leaves gold it in a strong position for 2019.

Only the Japanese yen, an alternative safe haven, fared better by gaining 4.1% over gold for the year.

Yearly Summary for 2017


(click on table for larger size)

Comex gold gained nearly 14% for 2017 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 Outlook for 2019

*** Soon to be revised for 2019 (2H) ***

My Kitco Commentary on gold prices and real rates:


In addition to real rates, other important charts to monitor are 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 up for the week. Relative value has generally trended higher from a double-bottom in U.S. dollar terms (August 17 & September 27, 2018) 

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 at 121.81, it is widely divergent from parity.

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 October 1, 2018 (0.4063). Currently this AM the AUSP is at 0.4677 and below the high of 0.5409 set at the close December 21, 2018. Importantly, the ratio has bullishly broke the upper rail again (dotted green line) of the downward trending channel.

Cheers,

Colonel Possum & Mariana



Photos by Mariana Titus if not otherwise noted.

Friday, April 26, 2019

Gold Giddy-Up $1,290; Prophecy's Gibellini Vanadium Project Rocks!

Prophecy Development Corp. 
(Click here  to see a cool video - Eureka County takes an important step into a future of strategic & critical mineral production)

Friday, April 26, 2019 AM

Next Week Target Gold Price: $1,290 per ounce, Target Silver Price: $15.13 per ounce.
High/Low range: $1,310/$1,280 per ounce

Here's an easy-to-understand overview on gold (32 slides, read explanation below each slide): History of gold and which countries have the most

Morning Miners!

This will be the last Friday report until June 14th - I'm taking my sweetheart Mariana to Europe to celebrate her Birthday (let's just say its a benchmark for total journey's around the sun).

On many levels, I'm very excited about Prophecy Development's Gibellini Vanadium project - its history and promising future.

Louis Gibellini, Jr. is a  key figure in this story. He excelled at single-jack, the hand drilling of rock with steel bits and hammer. Manual hard rock drilling built the early mines until replaced later by compressed air drills. "Louie," as he preferred to called called, would become the Nevada State Single-Jack Champion and also held the world title for a number of years. At age 63, he set a new Nevada State record hammering an 11 9/32-inch hole into a granite block in 10 minutes with a 4-pound hammer! (read more about Louie in my Elko Daily Free Press story: Eureka's Windfall)

One of Louie's many other talents was prospecting in Eureka County. The zinc mine at Lone Mountain and vanadium exploration in the south-eastern portion of the county are two examples. Prophecy Development Corporation is now developing his vanadium claims in a big way with permitting expected in the first quarter of 2021 followed by mine construction and first production in the fourth quarter of 2022.

If you want to see and hear the whole story, click on the link below the headline photo - a cool video - it rocks! Vanadium is an important step into a bright future of strategic & critical mineral production in Eureka County.

Gold reclaimed some important ground this week too. Here's how I told that story to Kitco News this morning:

"Gold has had a very strong week up 1% in morning trading as the yellow metal gains value on a broad array of assets including major currencies, key commodities and domestic equities. This performance is even more impressive given that the U.S. Dollar Index (DXY) is at 23-month highs with a lot of daylight above its 200-day moving average (98.04 vs. 95.95). 

Although beaten below the $1,300-level in the past several weeks, gold is making a comeback. The interest rate environment remains encouraging with Germany, Switzerland and Japan still underwater on their 10-year bonds. Even with a much better-than-expected Q1 report this morning (3.2% vs. 2.5%), the 10-year Treasury has once again dipped below 2.5%. This is keeping 10-year real rates contained near 0.5% - some 25 basis points below where they were a year ago.* 

Although the trade/inventory pop in GDP may lift the wings of Federal Reserve Hawks, decline in consumer spending should restrain resumption of aggressive rate hike policy. There are also still lots of goblins in the global closet with U.S./China trade negotiations and Brexit unresolved, a weakening Europe and slowing global growth. These are all bullish foundations for gold moving higher.

I believe Comex gold will regain $1,290 per ounce next week on a journey above $1,300 in the coming weeks. Silver is particularly interesting with a gold-to-silver (GSR) ratio still near late-2008 levels. If gold gets some giddy-up, silver will gallop to retake $16 ounce per ounce territory."

By the time I started writing this report, Comex gold had already created $1,290 per ounce.

Keep the faith! My bottom line bet is that gold will go further up the stairs in 2019.

This mornings' price action (gold marched above the $1,290-level after the early morning analysis):

Comex gold (6/19 contract) $1,286.4 per ounce, 
Comex silver (7/19 contract) $15.090 per ounce
Comex copper (7/19 contract) $2.8840 per pound

Have a good weekend!

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Crossroads for Silver Remain

Comex silver is now above $15 per ounce. 

The gold-to-silver ratio (GSR) is still very near highs not seen since November 2008. It is ready for a move down - bullish for silver if the Lustrous One recovers more territory. This morning the Comex GSR is 85.2. This chart shows the peak GSR was 86.7 April 15 (click for larger image size). The 10-year average GSR is much lower at 66.2 ounce per ounce.

Gold-to-Silver Ratio

Historical note:

If gold and silver are legal tender (see gold overview link below headline photo), then you have to come up with a set value for them and figure out which is more valuable than the other. In 1792, the U.S. fixed its price at 15:1. This means that 1 troy ounce — the long-used standard for measuring precious metals — of gold was worth 15 troy ounces of silver. Over the years, as this ratio has changed, precious metal investors have used it as a signal of when to buy.

At 85:1, silver is historically very, very cheap relative to gold!

Stay tuned.

Inflation Watch

Inflation expectations made a high April 23, 2018 above trend lines of higher lows (dotted lines, click on chart for larger size). Those trend lines were broken dramatically to the downside late last year and now struggle to recover.


10-year Inflation Expectations

Note: In the above chart inflation expectations peaked at 2.14% February 2, 2018 and then moved higher April 23 to 2.18%. May 29 broke a trend line of higher-lows falling to 2.04%. The older trend lines of higher-lows are shown in dark blue. Those trends extend from June 21, 2017 low of 1.66%. We were recovering from the January 3 low of 1.68% and now above the level of November 27, 2017 (red dashed line). The Wednesday expectations are up at 1.96%.

Bloomberg posted this U.S Labor Department chart which shows two other measures of inflation:


The Consumer Price Index (CPI) without food & energy (orange trace) is one monitored by the Federal Reserve. The fact that it has been trending down since mid-2018 suggests a decrease in the rate of inflation, called by economists "disinflation."

Many believe, including the ole Colonel, that gold price is more sensitive to inflation expectations (first chart). The Bloomberg chart is important because it influences Federal Reserve decisions on interest rates which also impact gold price.

My January Kitco News commentary explains the importance of tracking "real rates" which are a function of inflation expectations:


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 these columns are updated in this report.

 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 (note new continuous chart baseline): 

Gold $1,365.4 per ounce (continuous chart April, 2018)
Silver $18.160 per ounce (continuous chart September 2017))
Copper $3.2955 per pound ($7,265 per tonne, continuous chart December 2017)



Comex copper dropped 1.2% for the week. Presently trading at $2.8760 per pound ($6,340 per tonne), the red metal is now 12.7% below the December 2017 high. Maintaining prices above $6,000 per tonne is a key benchmark to price recovery; above $6,500 is bullish. 

Improving global growth had kept the red metal above the key $3 per pound-level in 2017. Initial trade war fears in 2018 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 sent the red metal plummeting. Copper has revived on optimism about a resolution of the U.S./China trade conflict. 

Total copper stored in LME and Nymex warehouses is 0.229 million tonnes and less than one-half the 0.5 million tonne mark of early-2018. The Nymex warehouse tonnage is behind the LME and now below the 40,000 tonne mark.

LME inventories thankfully picked up this week: 


It is important to keep our eyes on the Nymex inventories which are still falling (LME 194,800 versus Nymex 34,931 tonnes):


My Input to Kitco News 

Next Week target gold price $1,290 per ounce. Target silver price $15.13 per ounce.

Here is my input to the Kitco News Weekly Gold Survey:

Gold has had a very strong week up 1% in morning trading as the yellow metal gains value on a broad array of assets including major currencies, key commodities and domestic equities. This performance is even more impressive given that the U.S. Dollar Index (DXY) is at 23-month highs with a lot of daylight above its 200-day moving average (98.04 vs. 95.95). 

Although beaten below the $1,300-level in the past several weeks, gold is making a comeback. The interest rate environment remains encouraging with Germany, Switzerland and Japan still underwater on their 10-year bonds. Even with a much better-than-expected Q1 report this morning (3.2% vs. 2.5%), the 10-year Treasury has once again dipped below 2.5%. This is keeping 10-year real rates contained near 0.5% - some 25 basis points below where they were a year ago.* 

Although the trade/inventory pop in GDP may lift the wings of Federal Reserve Hawks, decline in consumer spending should restrain resumption of aggressive rate hike policy. There are also still lots of goblins in the global closet with U.S./China trade negotiations and Brexit unresolved, a weakening Europe and slowing global growth. These are all bullish foundations for gold moving higher.

I believe Comes gold will regain $1,290 per ounce next week on a journey above $1,300 in the coming weeks. Silver is particularly interesting with a gold-to-silver (GSR) ratio still near late-2008 levels. If gold gets some giddy-up, silver will gallop to retake $16 ounce per ounce territory.

* currently inflation expectations are rising at 1.96% compared to the January bottom of 1.68% (1/13/2019), source: FRED; current 10-year real rates are 0.54%, -25 bps y-o-y, source: Bloomberg

Additional Note:

The fate of the Chinese yuan remains a key tell for gold and copper; a material drop in valuation could impact copper negatively. Something to watch: the yuan dramatically weakened from mid-April 2018 and now is strengthening again.

The yuan stayed below 7.0 USD/CNY for 2018, starting stronger  and then followed by a weakening trend. It has re-strengthened in 2019. The yuan is currently at 6.7334 USD/CNY but with still a lot of daylight above the March 26, 2018 low (i.e. much stronger level) of 6.2342. 1-month yuan volatility is a very low 0.20%. Something to watch compared to 1-month volatilities of euro, yen and gold.

The euro & yen 1-month volatilites are 0.42% & 0.36% respectively; Comex gold 1-month volatility is 0.88%.

Weekly Summary April 26, 2019



Yearly Summary for 2018


(click on table for larger size)

Although Comex gold price lost some steam in 2018 (down 2.1%) it made healthy gains on key commodities copper and oil (up 22.8% & 30.2%). Against the broader Bloomberg Commodity Index (BCOMTR:IND), it advanced a respectable 10.3%. 

Importantly the yellow metal outpaced the S&P 500 stock index by 4.3% making it a better investment than domestic stocks for 2019. This leaves gold it in a strong position for 2019.

Only the Japanese yen, an alternative safe haven, fared better by gaining 4.1% over gold for the year.

Yearly Summary for 2017


(click on table for larger size)

Comex gold gained nearly 14% for 2017 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 Outlook for 2019 (1H)

*** Soon to be revised for 2019 (2H) ***

My 2019 Beer Bet: Gold will rise above $1,380 per ounce by May Day 2019

The first-half of 2019 will be a push-pull to higher $1,380+ gold prices underpinned by a trend of higher lows. This outlook is based on a weakening U.S. dollar and real interest rates that have peaked for the near-term against a volatile backdrop of Washington and geopolitical uncertainty.

Over the last five years, gold has been negatively correlated with 10-year real rates 71% of the time. This is reassuring given the popular assumption about opportunity cost for holding a gold position – the higher real rates go, the more costly to keep a non-interest bearing asset like gold. Falling real rates support rising gold prices and vice-versa. Less often, more dominant drivers are at play and gold price appears insensitive to changes in real rates. The low gold price volatility from mid-April to late-September is a good example. Over this time, the yellow metal behaved as a currency. It was highly correlated with the Chinese yuan; to a lesser degree, the euro and yen; and much less, to real rates. 

Which case will be true for the first half of 2019? My latest Kitco Commentary posits the former to be the most likely which is bullish for gold:


In addition to real rates, other important charts to monitor are 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 mixed for the week. It has generally trended higher from a double-bottom in U.S. dollar terms (August 17 & September 27, 2018) 

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 at 124.41, it is widely divergent from parity.

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 October 1, 2018 (0.4063). Currently this AM the AUSP is at 0.4403 and below the high of 0.5409 set at the close December 21, 2018. Importantly, the ratio had bullishly broke the upper rail (dotted green line) of the downward trending channel but has bearishly returned below.

Cheers,

Colonel Possum & Mariana



Photos by Mariana Titus if not otherwise noted.