Gold Finishes Strong for 2016; McEwen Mining & Gold Bar Thumbs Up for 2017!

Things are looking up for 2017

Eureka, Nevada

*** Breaking News ***

After the markets closed today, General Moly (GMO) made this announcement:

General Moly Receives Opinion from 9th Circuit Court of Appeals on Mt. Hope Record of Decision Challenge (Press release, 1:37 p.m. Eureka time, 12/30/2016)

Friday, December 30, 2016 AM  (Last Market Day)

Comex gold $1,158.3 per troy ounce
Comex silver $16.135 per troy ounce
Comex copper $2.5155 per pound

Happy New Year Miners,

After a tough post-election swoon, our favorite metal is finishing strong for the year. In the early hours, gold is just shy of $1,160 per ounce  - up over 2% in U.S. dollars for the week and heading for a 9 % gain for the year. That's not bad, pardner, and very close to the vaunted U.S. stock market gains for 2016.

Yes, we have fallen quite a bit from the $1,375 mid-summer highs but gaining an annual 9% in a strong U.S. dollar environment is nothing to get discouraged about. Gold is set to score weekly gains against the S&P 500, key commodities copper and oil, and major currencies euro and yen - not a bad sprint to the finish.

A strong U.S. dollar and rising interest rates have been significant headwinds for gold since post-election. However, if inflation expectations rise with nominal rates in 2017 the impact to gold price is lessened and possibly reversed if real rates turn negative.

As we discussed last week, the question becomes whether 2017 will be a repeat of 2013 with gold losing value across a broad set of assets, which included stocks, commodities and currencies, or stabilize in a range above $1,100. There are continued signs that the latter case will prevail. I remain optimistic that gold will regain its mojo in the coming year falling in a range of $1,125 to $1,320 per ounce*. Average gold price for 2017 should register above $1,200 per ounce.

An important gold ratio to watch is gold-to-S&P500 or AUSP. The ratio bottomed in early-December of last year and reversed to a bullish trend, peaking February 11. It bottomed again December 20 but has been trending higher since. Confirming a double-bottom in the coming months would be a significant positive for the lustrous metal.

Gold is gaining ground on the embattled euro and yen. Post-election, gold in euro and yen terms are converging and safely above 2013 lows [chart below]. Additionally, gold ratios relative to copper and oil are stabilizing near historically less extreme levels which is a healthy sign [Chart to Watch, below]. Geo-political events and/or a bump in inflation expectations could restore glitter to gold in 2017.

For January there may be more pain ahead. However, gold near my low-range of $1,125 per ounce-level is a tempting "buy."

*My pre-election October range for gold price was $1,240 to $1,320 per ounce, Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper

Gold in euro & yen terms converging post-election

McEwen Mining & Gold Bar Thumbs Up for 2017!

An exciting development for Eureka will be the re-opening of the Gold Bar Mine north of town. Some us old timers have fond memories of Gold Bar when it was operated by Atlas in the late-1980s and early-1990s (Johnny Horton and Atlas Mine Memories, Eureka Miner, Nov. 11, 2009).

McEwen Mining expects to have permitting done and an ROD by the third quarter of 2017. Mine construction will follow with first production expected by the end-of-2018. Their mine feasibility study assumes a reasonable $1,150 per ounce which nets a greater than 20% internal rate-of-return and payback in 3 years.

Here is a recent Kitco video with McEwen Mining CEO Rob McEwen discussing Gold Bar, other projects and his gold outlook for 2017:

McEwen Gives His Gold Outlook In This No-holds-barred Interview With Daniela Cambone (Kitco News, 12/28/2016)

Rob McEwen has been inducted in the the Mining Hall of Fame receiving the honors January 12. Congratulations and the best of luck to you and your team in 2017!

Winter 2016 Edition Mining Quarterly

Elko Daily Free Press Editor Marianne Kobak McKown has put together another dandy. The Winter Edition of the Mining Quarterly has great columns on Newmont Mining Corp.'s Twin Creeks Mine, Cripple Creek and Victor Mine (Colorado), Barrick Gold Corp.'s Cortez Hills, EP Minerals' unique product and the Kinross expansion of Bald Mountain.

Chart to Watch

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

Gold’s record rise against key commodities
in the strong dollar era 

Excerpt from the just released Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper:

This chart [updated through this morning, December 23] is a record of oil and copper gold ratios for the last six years. October, 2010 was a relatively peaceful period when ratios were stable and close to historical norms following the market turbulence of the 2008-2009 financial crisis.

The chart indicates the percentage value change from that moment of calm. The China slowdown began to impact commodity prices in 2011. However, prices were protected to a degree by U.S. monetary policy that suppressed the value of the U.S. dollar. 

For example, even during periods a high volatility, copper prices rarely dipped below $3 per pound. This is a level above even the most optimistic forecasts these days. Two Federal Reserve quantitative easing programs (or QE, the printing of dollars to buy bonds) helped moderate gold ratios through October 2014 amid record gold peaks, crashing copper prices and $100-plus oil. This period is shown by the gray box in the chart. The Oct. 3, 2011 +50% extreme occurred as the gold-to-copper ratio peaked following the already noted U.S. debt crisis. The bottom of the box marks a -30% low for the gold-to-oil ratio. Wild days for sure but the Federal Reserve kept commodity storms inside the hotel. 

Trouble spilled onto the streets when the U.S. stopped printing money concurrent with a global crash in oil prices in late-2014. At the same time, other central banks tried to goose their stagnant economies with increasingly looser and experimental policies as the U.S contemplated raising interest rates. This divergence in monetary policy ushered in the current strong dollar era – a real headwind for dollarized commodities.

The value of gold relative to oil and copper headed north in a hurry. This year, the gold-to-oil ratio reached a record and unsustainable high Feb. 11 (up 180%); and for copper, Sep. 7 (up 80%). To give this some historical perspective, the average gold-to-oil ratio for the QE2 through QE3 period is 15.7 barrels per ounce. From 1986 through QE3, the average is 16.0. The February peak touched a jaw-dropping 47 barrels. Copper soared from 350 pounds per ounce six years ago to top out above 640.

Gold price in U.S. dollars rallied strongly as copper and oil fell at the beginning of 2016 scoring a nearly 30% gain by early-July. The yellow metal had left the commodity hotel and dominated major currencies as I explained in the Fall Edition of the Mining Quarterly. Very unusual times indeed. 

As 2016 comes to a close there are increasing signs that major central banks will methodically pull back from aggressive policies and those nations will look to fiscal stimulation to keep their economies energized. Oil and copper prices are on the rise given an extra boost by rising inflation expectations. Gold ratios in turn are falling from their lofty peaks...It is important to note that the higher-low trendlines (dashed lines) have now been broken with declining gold ratios. So far go good - confident resource CEOs pass the gold test. Supply will slowly come into balance with demand and the yellow metal is checking back in the commodity hotel.

Happy New Year!

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted

Merry Christmas Miners! Gold Outlook for 2017

December 2011, Eureka, Nevada

Friday, December 23, 2016 AM 

Comex gold $1,135.8 per troy ounce
Comex silver $15.825 per troy ounce
Comex copper $2.4835 per pound

Merry Christmas Miners,

The good, the bad and the ugly for gold prices - hey, it ain't all that bad for 2017! My input to this morning's Weekly Kitco Gold Survey:

A strong U.S. dollar and rising interest rates have been significant headwinds for gold since post-election. However, if inflation expectations rise with nominal rates in 2017 the impact to gold price is lessened and possibly reversed if real rates turn negative. One hopeful sign for the yellow metal has been the concurrent rally in the 10-year break-even rate (i.e. spread between 10-year Treasurys and TIPS). Unfortunately the uptrend was broken Monday suggesting the inflation trade is overdone - at least for now - a bearish development for gold.

On the bullish side of the ledger, there are indications that the Russian central back believes there is value to increasing their already substantial gold position. In the last two months, Russia has purchased 2.5% of the total world production - a significant increase, some 82 tonnes. It will be instructive to see if China follows this trend. Central banks may be seeing something ahead markets are missing.

The question becomes whether 2017 will be a repeat of 2013 with gold losing value across a broad set of assets, which included stocks, commodities and currencies, or stabilize in a range above $1,100. There are some encouraging signs that the latter case will prevail. I remain optimistic that gold will regain its mojo in the coming year falling in a range of $1,125 to $1,320 per ounce*.

An important gold ratio to watch is gold-to-S&P500 or AUSP. The ratio bottomed in early-December of last year and reversed to a bullish trend, peaking February 11. This morning remains near a new low made Tuesday, a fall of 27% from that high.

However, gold is still holding ground with the embattled euro and yen. Post-election, gold in euro and yen terms are converging and safely above 2013 lows [chart below]. Additionally, gold ratios relative to copper and oil are stabilizing near historically less extreme levels which is a healthy sign [Chart to Watch, below]. Geo-political events and/or a bump in inflation expectations could restore some glitter to gold in 2017. 

For December there may be more pain ahead. However, gold at the $1,115 per ounce-level is a tempting "buy." 

My vote is down. Gold target for next week is $1,120 per ounce; Silver, $15.9 per ounce

Holiday Cheers!

*My pre-election October range for gold price was $1,240 to $1,320 per ounce, Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper

Gold in euro & yen terms converging post-election

Winter 2016 Edition Mining Quarterly

Elko Daily Free Press Editor Marianne Kobak McKown has put together another dandy. The Winter Edition of the Mining Quarterly has great columns on Newmont Mining Corp.'s Twin Creeks Mine, Cripple Creek and Victor Mine (Colorado), Barrick Gold Corp.'s Cortez Hills, EP Minerals' unique product and the Kinross expansion of Bald Mountain.

Chart to Watch

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

Gold’s record rise against key commodities
in the strong dollar era 

Excerpt from the just released Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper:

This chart [updated through this morning, December 23] is a record of oil and copper gold ratios for the last six years. October, 2010 was a relatively peaceful period when ratios were stable and close to historical norms following the market turbulence of the 2008-2009 financial crisis.

The chart indicates the percentage value change from that moment of calm. The China slowdown began to impact commodity prices in 2011. However, prices were protected to a degree by U.S. monetary policy that suppressed the value of the U.S. dollar. 

For example, even during periods a high volatility, copper prices rarely dipped below $3 per pound. This is a level above even the most optimistic forecasts these days. Two Federal Reserve quantitative easing programs (or QE, the printing of dollars to buy bonds) helped moderate gold ratios through October 2014 amid record gold peaks, crashing copper prices and $100-plus oil. This period is shown by the gray box in the chart. The Oct. 3, 2011 +50% extreme occurred as the gold-to-copper ratio peaked following the already noted U.S. debt crisis. The bottom of the box marks a -30% low for the gold-to-oil ratio. Wild days for sure but the Federal Reserve kept commodity storms inside the hotel. 

Trouble spilled onto the streets when the U.S. stopped printing money concurrent with a global crash in oil prices in late-2014. At the same time, other central banks tried to goose their stagnant economies with increasingly looser and experimental policies as the U.S contemplated raising interest rates. This divergence in monetary policy ushered in the current strong dollar era – a real headwind for dollarized commodities.

The value of gold relative to oil and copper headed north in a hurry. This year, the gold-to-oil ratio reached a record and unsustainable high Feb. 11 (up 180%); and for copper, Sep. 7 (up 80%). To give this some historical perspective, the average gold-to-oil ratio for the QE2 through QE3 period is 15.7 barrels per ounce. From 1986 through QE3, the average is 16.0. The February peak touched a jaw-dropping 47 barrels. Copper soared from 350 pounds per ounce six years ago to top out above 640.

Gold price in U.S. dollars rallied strongly as copper and oil fell at the beginning of 2016 scoring a nearly 30% gain by early-July. The yellow metal had left the commodity hotel and dominated major currencies as I explained in the Fall Edition of the Mining Quarterly. Very unusual times indeed. 

As 2016 comes to a close there are increasing signs that major central banks will methodically pull back from aggressive policies and those nations will look to fiscal stimulation to keep their economies energized. Oil and copper prices are on the rise given an extra boost by rising inflation expectations. Gold ratios in turn are falling from their lofty peaks...It is important to note that the higher-low trendlines (dashed lines) have now been broken with declining gold ratios. So far go good - confident resource CEOs pass the gold test. Supply will slowly come into balance with demand and the yellow metal is checking back in the commodity hotel.

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted

Gold's Challenge Next Week...

Late-November, Eureka, Nevada

Friday, December 9, 2016 AM 

Comex gold $1,167.5 per troy ounce
Comex silver $17.115 per troy ounce
Comex copper $2.6520 per pound

Bird's-eye view on gold price (update Monday, December 12, 2016 AM)

It is easy to become discouraged about the direction of gold price. The yellow metal has been trending down for five months and touched a new 10-month low this morning. Prices accelerated to the downside post-election with rapidly rising interest rates but this could stall and even reverse if inflation picks up in 2017. My view is there will be some scary moments ahead, even a sub-$1,100 plunge before year's end, if the U.S. Federal Reserve decides to raise the Fed fund rate this week. Some experts say the greatly anticipated hike is already priced in but there will likely still be a dramatic market reaction - we only have to think back to last December when gold dropped to the $1,050-level with the last increase.

The question becomes whether 2017 will be a repeat of 2013 with gold losing value across a broad set of assets which included stocks, commodities and currencies or stabilize in a range above $1,100. There are some encouraging signs that the latter case will prevail (as mentioned below). I remain optimistic that gold will regain its mojo in the coming year falling in a range of $1,125 to $1,320 per ounce.

[Note: My pre-election October range for gold price was $1,240 to $1,320 per ounce, Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper]

****

Morning Miners,

A rough week for gold as it neared 10-month lows. My input to this morning's Weekly Kitco Gold Survey:

Gold faces more challenges next week as consensus is high that the FOMC will bump interest rates against a backdrop of this week's trim-but-extend net dovish policy direction from the ECB. This likely sustains a divergence trend between the Federal Reserve and other major central banks producing tailwinds for the already strong USD and headwinds for gold price.

Gold continues a bearish descent as it faces rising interest rates that, so far, outpace inflation expectations. However, signs of increasing inflation and stronger physical demand for the yellow metal in China are encouraging. Key will be the interplay between interest rates in the U.S. and increasing inflation expectations from anticipated fiscal stimulation and improved economic growth.

A key gold ratio to watch is gold-to-S&P500 or AUSP. The ratio bottomed in early-December of last year and reversed to a bullish trend, peaking February 11. This morning the ratio is at a new 2016 low, falling nearly 25% from that high with stocks making new highs and gold in bearish retreat.

Most importantly, a trend of higher-lows broke down in late September and now the AUSP is only 3% above last December's low. We could see gold lose all its 2016 US dollar gains before year's end.

However, gold is holding ground with the embattled euro and yen [chart below]. Post-election, gold in euro and yen terms are converging and still safely above 2013 lows. Additionally, gold ratios relative to copper and oil are falling to historically less extreme levels which is a healthy sign [see Chart to Watch, below]. Missteps in the early days of a Trump presidency and/or a bump in inflation expectations could restore some glitter to gold in 2017.

My vote is down. Gold target for next week is $1,160 per ounce; Silver, $17.00 per ounce

Have a fun weekend!

Gold in euro & yen terms converging post-election

Chart to Watch

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

Gold’s record rise against key commodities
in the strong dollar era 

Excerpt from the just released Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper:

This chart [updated through this morning, December 9] is a record of oil and copper gold ratios for the last six years. October, 2010 was a relatively peaceful period when ratios were stable and close to historical norms following the market turbulence of the 2008-2009 financial crisis.

The chart indicates the percentage value change from that moment of calm. The China slowdown began to impact commodity prices in 2011. However, prices were protected to a degree by U.S. monetary policy that suppressed the value of the U.S. dollar. 

For example, even during periods a high volatility, copper prices rarely dipped below $3 per pound. This is a level above even the most optimistic forecasts these days. Two Federal Reserve quantitative easing programs (or QE, the printing of dollars to buy bonds) helped moderate gold ratios through October 2014 amid record gold peaks, crashing copper prices and $100-plus oil. This period is shown by the gray box in the chart. The Oct. 3, 2011 +50% extreme occurred as the gold-to-copper ratio peaked following the already noted U.S. debt crisis. The bottom of the box marks a -30% low for the gold-to-oil ratio. Wild days for sure but the Federal Reserve kept commodity storms inside the hotel. 

Trouble spilled onto the streets when the U.S. stopped printing money concurrent with a global crash in oil prices in late-2014. At the same time, other central banks tried to goose their stagnant economies with increasingly looser and experimental policies as the U.S contemplated raising interest rates. This divergence in monetary policy ushered in the current strong dollar era – a real headwind for dollarized commodities.

The value of gold relative to oil and copper headed north in a hurry. This year, the gold-to-oil ratio reached a record and unsustainable high Feb. 11 (up 180%); and for copper, Sep. 7 (up 80%). To give this some historical perspective, the average gold-to-oil ratio for the QE2 through QE3 period is 15.7 barrels per ounce. From 1986 through QE3, the average is 16.0. The February peak touched a jaw-dropping 47 barrels. Copper soared from 350 pounds per ounce six years ago to top out above 640.

Gold price in U.S. dollars rallied strongly as copper and oil fell at the beginning of 2016 scoring a nearly 30% gain by early-July. The yellow metal had left the commodity hotel and dominated major currencies as I explained in the Fall Edition of the Mining Quarterly. Very unusual times indeed. 

As 2016 comes to a close there are increasing signs that major central banks will methodically pull back from aggressive policies and those nations will look to fiscal stimulation to keep their economies energized. Oil and copper prices are on the rise given an extra boost by rising inflation expectations. Gold ratios in turn are falling from their lofty peaks...It is important to note that the higher-low trendlines (dashed lines) have now been broken with declining gold ratios. So far go good - confident resource CEOs pass the gold test. Supply will slowly come into balance with demand and the yellow metal is checking back in the commodity hotel.

Cheers,

Colonel Possum

Photos by Mariana Titus if not otherwise noted

Happy Veteran's Day from Louisiana!

Happy Veteran's Day from Louisiana

Friday, November 11, 2016 AM (Vacation Special)

(Update 10:26 a.m. Eureka time)

Comex gold $1,229.4 per troy ounce
Comex silver $17.520 per troy ounce
Comex copper $2.5075 per pound

What a week it was for gold! My input to this morning's Weekly Kitco Gold Survey:

From my bayou perch in Franklin, Louisiana, I believe a key driver for gold is the ascension of copper price. Even before the volatility of the November election, gold began a normalization with both the red metal and oil as their gold ratios broke higher-low trend lines (see graph below). 

Gold ratios descending towards historical norms (e.g., stabilizing gold price, rising copper price) signals that gold is checking back in the commodity hotel after a two-year run with the currency crowd. We have witnessed record and unsustainable gold ratios since the strong dollar era began in late-October 2014. As developed nations slowly replace aggressive monetary policies with fiscal stimulus, commodity prices should rise. This is further aided by increasing inflation expectations. 

Gold will likely stabilize in a range of $1,240 to $1,320 per ounce in the next 6 months (even though gold has dipped below that range this morning). 

My vote is up. Target gold price for next week is $1,240 per ounce; silver price, $17.48 per ounce 

Have a fun weekend and thank a veteran for his or her service!

Ain't worried about nuthin'

Chart to Watch

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

Gold’s record rise against key commodities
in the strong dollar era 

Excerpt from the upcoming Winter 2016 Edition of the Mining Quarterly:

This chart is a record of oil and copper gold ratios for the last six years. October, 2010 was a relatively peaceful period when ratios were stable and close to historical norms following the market turbulence of the 2008-2009 financial crisis.

The chart indicates the percentage value change from that moment of calm. The China slowdown began to impact commodity prices in 2011. However, prices were protected to a degree by U.S. monetary policy that suppressed the value of the U.S. dollar. 

For example, even during periods a high volatility, copper prices rarely dipped below $3 per pound. This is a level above even the most optimistic forecasts these days. Two Federal Reserve quantitative easing programs (or QE, the printing of dollars to buy bonds) helped moderate gold ratios through October 2014 amid record gold peaks, crashing copper prices and $100-plus oil. This period is shown by the gray box in the chart. The Oct. 3, 2011 +50% extreme occurred as the gold-to-copper ratio peaked following the already noted U.S. debt crisis. The bottom of the box marks a -30% low for the gold-to-oil ratio. Wild days for sure but the Federal Reserve kept commodity storms inside the hotel. 

Trouble spilled onto the streets when the U.S. stopped printing money concurrent with a global crash in oil prices in late-2014. At the same time, other central banks tried to goose their stagnant economies with increasingly looser and experimental policies as the U.S contemplated raising interest rates. This divergence in monetary policy ushered in the current strong dollar era – a real headwind for dollarized commodities.

The value of gold relative to oil and copper headed north in a hurry. This year, the gold-to-oil ratio reached a record and unsustainable high Feb. 11 (up 180%); and for copper, Sep. 7 (up 80%). To give this some historical perspective, the average gold-to-oil ratio for the QE2 through QE3 period is 15.7 barrels per ounce. From 1986 through QE3, the average is 16.0. The February peak touched a jaw-dropping 47 barrels. Copper soared from 350 pounds per ounce six years ago to top out above 640.

Gold price in U.S. dollars rallied strongly as copper and oil fell at the beginning of 2016 scoring a nearly 30% gain by early-July. The yellow metal had left the commodity hotel and dominated major currencies as I explained in the Fall Edition of the Mining Quarterly. Very unusual times indeed. 

As 2016 comes to a close there are increasing signs that major central banks will methodically pull back from aggressive policies and those nations will look to fiscal stimulation to keep their economies energized. Oil and copper prices are on the rise given an extra boost by rising inflation expectations. Gold ratios in turn are falling from their lofty peaks as gold prices stabilize in a range of $1,240-$1,320 per ounce. It is important to note that the higher-low trendlines (dashed lines) have now been broken with declining gold ratios. So far go good - confident resource CEOs pass the gold test. Supply will slowly come into balance with demand and the yellow metal is checking back in the commodity hotel.

Newmont Mining pours first gold at Long Canyon mine

Nov. 11, 2016 1:48 PM ET|About: Newmont Mining Corporation ... (NEM)|By: Carl Surran, Seeking Alpha News Editor 

Newmont Mining (NEM -7.8%) says it poured first gold from its Long Canyon mine in Nevada ahead of schedule and below budget, and expects to declare commercial production next week. NEM says Long Canyon was completed two months ahead of schedule for slightly less than $225M, ~$50M or 18% below budget. Long Canyon, which NEM calls the most significant oxide gold discovery in Nevada in more than a decade, is expected to produce 100K-150K oz. of gold annually over an eight-year mine life at some of the lowest costs in its portfolio.

Cheers,

Colonel Possum

Photos by Mariana Titus if not otherwise noted

Gold Rebound? "Solid Jobs Report" Loretta Mester Speaks

In a World Where the ALPI_E LODGE Looks Square and Nothing Else Does

Eureka, Nevada (September 2012)

Update: Friday, October 28, 2016 AM 

The Colonel will be on the road for a month. Here's the latest before I depart:

Comex gold $1,273.5 per troy ounce

Comex silver $17.765 per troy ounce

Comex copper $2.1855 per pound

A mild uptrend for gold continues. My input to this morning's Weekly Kitco Gold Survey:

USD gold price is slightly up for the week. Three key drivers: global bond selloff with U.S. 10-yr note touching 1.88%, continuing Japanese yen weakness trend and ongoing commodity normalization.

Interest rates are on the rise with an expected U.S. Federal Reserve hike expected for December. This was allied this morning with a better-than-expected GDP of 2.9%. However, inflation expectations are also increasing blunting to some extent the rise in rates and negative effect on gold price. Money moving away from Treasurys as a safe haven option is also supportive for gold.

The yen continued to weaken from the key-100 USDJPY level; a bullish indication for gold. Moving above 105 USDJPY this morning affirms the uptrend which is encouraging because both often compete for safe haven status (by contrast, gold in yen terms came perilously close to it 2013 low earlier this month)

The Bloomberg Commodity Index (BCOMTR:IND) continues to trend higher from its January low (up more than 17% to date). In turn, key gold ratios are reverting to mean trend lines from recent unsustainable levels. For example, in early-September an ounce of gold fetched a record 644 pounds of the red metal; this morning, a more reasonable 580. From a commodity viewpoint gold prices are stabilizing [see graph below].

I therefore remain cautiously bullish near term with uncertainties surrounding the U.S. election still in play.  

Have a good weekend!

My vote is up. Target price for gold next week is $1,280; target for silver, $17.9

This six-year chart illustrates the record rise in gold value relative to oil and copper to unsustainable levels. The rising trend started in October 2014 at the end of U.S. quantitative easing (the printing of dollars to buy bonds) and the concurrent collapse of the global oil market. There are now signs of market rebalancing as oil and copper prices rebound and gold price stabilizes:

(Click on image for larger size)

This will be the subject of my column for the upcoming 2016 Winter Edition of the Mining Quarterly.

Update: Friday, October 14, 2016 AM 

Comex gold $1,253.0 per troy ounce

Comex silver $17.445 per troy ounce

Comex copper $2.1185 per pound

At least three good things happened for gold this week! My input to this morning's Weekly Kitco Gold Survey:

Although USD gold price is near last Friday's close, three positives occurred this week: very solid foreign participation in the Thursday U.S. 30-year Treasury auction, ongoing commodity normalization and a Japanese yen weakness trend.

Healthy foreign demand for longer maturity Treasurys signals the cost of currency hedges is not great enough to offset the yield advantage of U.S. bonds in a negative interest rate world. A flatter U.S. yield curve should blunt somewhat the deleterious effect of future Fed rate hikes, especially if inflation expectations are on the rise (i.e. real rates remain low which is gold bullish).

The Bloomberg Commodity Index (BCOMTR:IND) has been on the rise since September (up more than 5% to date). In turn, key gold ratios are reverting to mean trend lines from recent unsustainable levels. For example, in early-September an ounce of gold fetched a record 644 pounds of the red metal; this morning, a more reasonable 590. From a commodity viewpoint gold prices are stabilizing.

Lastly, a yen weakening from the key-100 USDJPY level is good for gold. Gold's rise this week against the yen is encouraging because both often compete for safe haven status (by contrast, gold in yen terms came perilously close to it 2013 low earlier this month).  I therefore remain cautiously bullish near term given uncertainties surrounding the U.S. election still in play and questionable soundness of the European banking system.

My vote is down. Target price for gold next week is $1,260; target for silver, $17.6

For Dodger fans the Saturday game with the Cubs in Chicago should be a thriller. Go Dodgers!

The Colonel and daughter Lisa at Dodger Stadium

(Sept. 24, 2016)

Friday, October 7, 2016 AM 

Comex gold $1,263.3 per troy ounce
Comex silver $17.590 per troy ounce
Comex copper $2.1750 per pound

What a week it was for gold! My input to this morning's Weekly Kitco Gold Survey:

A week that features a 5% drop in gold prices and an even greater drop in a major reserve currency is certainly one to remember. A mildly worse-than-expected U.S. jobs report, an ECB hinting a QE taper and a historic hurricane in Florida mixes up a witches' brew for predicting the next move in gold prices.

Although the precipitous drop in the British pound may have been initiated by robot trading and the gold selloff by a large liquidation [see below], downward momentum for both is now in play. I continue to believe the actions of major central banks outside the U.S. have established a floor under gold price with negative interest rates and increasingly experimental monetary policies. This week challenged that floor but prices should recover some even with a more likely December hike in U.S. interest rates.

It is important to remember that the Chinese have been off all week on holiday and have not voted in gold's fortunes. Upcoming holidays and celebrations in both China and India should boost physical demand. I therefore remain cautiously bullish near term with uncertainties surrounding the U.S. election still in play and questionable soundness of the European banking system.

I think the yen is very important to watch posing one of the greatest challenges to the yellow metal this week. Gold in yen terms is fast approaching its 2013 low (within 6% this AM), a very bearish indication for gold prices [see chart below]. There is probably a little more short term pain ahead next week.

My vote is down. Target price for gold next week is $1,240; target for silver, $17.2

Have a fun weekend!

(see more commentary at the bottom of this report...)

Chart to Watch

Here's a chart we've watched before. It is the price margin of gold (%) from its 2013 lows in terms euro and Japanese yen (euros per troy ounce, yen per troy ounce). Click on the image for a larger size:

These plots are important because the ECB and Japan have taken extreme measures to devalue their currencies. If the price of gold rises against devalued currencies that is a bullish indicator; if it falls, a bearish one. Falling all the way to the 2013 lows or below would be very bearish.

2016 has been very good for gold against all major currencies rising with more than a 40% gain from its 2013 low for the euro. The gains for gold have been less in terms of yen (16%) because the gold often competes with the yen for safe haven status. After Brexit and recent attempts by the Bank of Japan to curb deflation and revive its moribund economy, gold has fallen from its 2016 highs. That loss accelerated this week bringing gold in yen within 6% of its 2013 low this morning. Something to watch.

Here are the recent stats on 2016 gold lows in U.S. dollars:

$1,251.8 per troy ounce, yesterday 10/6/2016

$1,259.1 per troy ounce 6/24/2016

$1,207.0 per troy ounce 5/31/2016

Hopefully, the markets won't need to test the May low. Currently it is very near the commodity value of gold, or $1,201.4, based on current oil, copper and silver prices. Stay tuned.

Fall Edition 2016 - Mining Quarterly

The Fall Edition 2016 of Mining Quarterly has hit the streets.

Marianne Kobak McKown has done another outstanding job creating a  terrific MQ which features a column by our old friend Adella Harding! There is an excellent update on Newmont's Long Canyon Project, Barrick's Turquoise Ridge and much, much more.

My MQ  column on gold's bullish path forward was also carried in the Elko Daily Free Press:

Gold, currencies and negative interest rates; The stars and planets of global monetary systems align for gold (September 8, 2016)

(Checkout the online Mining Quarterly today!)

Happy reading!

Numbers used for analysis (October 7 early AM prices):

Bloomberg Commodity Index (BCOMTR:IND)

173.56 (low January 20, 2016 146.8798)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $ 50.33 per barrel 

Brent crude $ 52.35 per barrel 

Comex copper $2.1750 per pound

Comex gold $1,263.3 per troy ounce 

Comex silver $17.590 per troy ounce

Latest Nevada gasoline prices

Gold Rebound? "Solid Jobs Report" Loretta Mester Speaks

The Colonel is cautiously bullish on the yellow metal

Morning Miners!

Searching through some old Eureka Miner photos, I found today's picture of the Alpine Lodge (with the missing "N") from September 2012. The caption is a good one for understanding the market this week. Brown Brothers has since done a great job stabilizing this historic building and eliminating a lot of its less-square features.

I've watched about 90 monthly jobs reports on CNBC Business News and reported on most since the darkest days of 2009. It is deemed among the most significant data for markets since employment is a key indicator of the health of our economy. Also, because "full employment" and price stability (i.e. some but not a lot of inflation) are key goals of the Federal Reserve's dual-mandate, these data greatly influence the pace and magnitude of future interest rate hikes. Rising interest rates in a low inflation environment are a significant headwind for gold...so set the alarm at 5:00 a.m. and await the news every first Friday of the month!

An important voice for the Fed's direction has been coming lately from Lorreta Mester - President and Chief Executive Officer, Federal Reserve Bank of Cleveland. Her comments about the wisdom and timing of future hikes contributed in part to gold's down swoon this week. She said,"We have to be a little preemptive in making sure that we're moving the interest rate up so that we can keep the expansion sustained."

Here is the Bloomberg report on those comments

Don't delay U.S. rate hike, says Fed's Mester: Bloomberg (Bloomberg News, October 3, 2016)

Now back to the wee hours of this morning. Who was sitting with the CNBC talking heads when the September employment numbers rolled in? Loretta Mester!

A quick Labor Department report snapshot: 156,000 jobs added versus an expectation of 167,000, headline unemployment creeping up to 5%, a 0.2% rise in average hourly earnings and net downward division of 7,000 jobs for two prior months.

What you may think of these numbers doesn't move the price of gold. What Ms. Mester thinks does. Although Fed Chair Janet Yellen has the final say, Ms. Mester is a key input to the FOMC when they reconvene for future discussions.

She said 156,000 jobs is a "solid number" reminding the CNBC crew that the 3-month average is 192,000 or north of 2 million jobs annually. From her viewpoint 5% unemployment is "full employment" (this an economist way of saying the natural rate of unemployment is nearing optimum. "Full employment" does not mean that everyone has a job). The average hourly earnings uptick implied some inflation was returning and the "economy remains very resilient." Of course, Ms. Mester demured from saying when but did affirm the next bump would be the much anticipated 0.25%.The CNBC panelists concluded that December was now the most likely time (just like last December).

As I have said for some time, a hike in short-term interest rates is not the death knell for gold especially if inflation rises in tandem. Gold price reacts to nominal interest rates less inflation expectations. However, market reaction to the next bump up will probably put some pressure on the price of the yellow metal. From my Kitco input above, remember that the actions of major central banks outside the U.S. have established a floor under gold price with negative interest rates and increasingly experimental monetary policies - they are easing, we are tightening.

I remain cautiously bullish going forward.

What Triggered the Selloff?

Although comments from Loretta Mester and suggestions that the ECB may taper their QE program set the stage for the pullback in gold, there is usually a trigger for a dip in prices this severe. Dennis Gartman of the renowned Gartman Letter offered this explanation:

As for gold and the other precious metals they remain rather obviously weak and as we move away from Tuesday’s collapse it appears more and more that this was a forced liquidation on the part of a large… actually a massive… hedge fund out of London. The sheer panic that swept through the gold market then really hadn’t the look of a sell off predicated upon a rumoured push by the ECB to curtail its purchases of sovereign debt securities, nor had it the look of a rush on the part of hedgers in the gold mining industry to hedge forward production. Rather it had the look of forced margin-clerk liquidation. It looked like panic on the part of someone, somewhere who had lost control of the situation. (Dennis Gartman)

Have a good weekend!

Cheers,

Colonel Possum

Photos by Mariana Titus if not otherwise noted

Early Bird View for October - A Good Month for Gold?

Eureka Rodeo (Spring 2012)

Eureka, Nevada

Friday, September 30, 2016 AM 

Comex gold $1,323.4 per troy ounce
Comex silver $19.335 per troy ounce
Comex copper $2.2085 per pound

October may prove to be quite a ride for gold. My input to this morning's Weekly Kitco Gold Survey:

An early bird view for October:

The environment facing gold in the remaining months of 2016 is reminiscent of Secretary of Defense Don Rumsfeld's famous quote about known knowns, known unknowns and unknown unknowns.

Known knowns 

We know actions of major central banks outside the U.S. have established a solid floor under gold price around $1,300 per ounce with negative interest rates and increasingly experimental monetary policies. 

Known unknowns 

The U.S. Federal Reserve is committed to future rate increases but with unknown timing. The Damocles sword of future increases puts a price cap at roughly $1,400 per ounce.

On October 1st, the IMF includes the Chinese yuan in its honored basket of reserve currencies. Prior to Saturday's event, the Chinese currency has demonstrated abnormally low levels of volatility (note 1, moon rocks). We know the yuan will restart a devaluation trajectory once it's in the club but with unknown pace and magnitude. A surprise devaluation could rally gold and potentially crater global markets as it did August '15 and January of this year. A gradual pace may go almost unnoticed.

Finally, gold in yen terms has resumed its multi-month downward trend. Revisiting its 2013 low would be very bearish for the yellow metal - it fell within 9% of this low mark Wednesday (note 2). The key level to watch is USD/JPY 100. If, as some experts believe (note 3, Sakakibara), the yen is headed for 90 then gold would have to stay above $1,360 per ounce to avoid a new low - a significant challenge. Recent attempts to strengthen this currency have failed, the success of future BoJ policies is unknown. 

Unknown unknowns 

A range of exogenous possibilities surrounding the U.S. election process including cyber-tampering of election results and new e-mail revelations top the list of unknown unknowns. The outbreak of hostilities between India and Pakistan and a banking crisis contagion spreading from Deutsche Bank woes are also on October's growing list of hobgoblins. As October begins, I bet one or more bullish outcomes is in the cards.

My vote is up. Target price for gold next week is $1,330; target for silver, $19.2

Have a relaxing weekend.

Note 1: The 1-month volatility of the yuan is a startling 0.082% (% SD variation about an average 6.6697 USD/CNY) Here's a 1-month volatility comparison with USD, EUR & JPY:

USD (UUP) 4.1X more volatile than CNY (yuan)
EUR (euro) 3.9X
JPY (yen) 10.9X

The PBOC is presumably allowing market forces to determine value about their managed peg against a basket of currencies. Given the volatility comparisons, the basket must lately contain a lot of moon rocks!

Note 2: Gold competes with the yen as a safe haven asset. Losing value to the yen is thereby bearish; breaching its 2013 low, very bearish.

Note 3: Bloomberg column, 9/26/2016:

BOJ Policy Exhaustion Means Yen Will Rise to 90, SakakibaraSays

(more commentary below...)

Fall Edition 2016 - Mining Quarterly

The Fall Edition 2016 of Mining Quarterly has hit the streets.

Marianne Kobak McKown has done another outstanding job creating a  terrific MQ which features a column by our old friend Adella Harding! There is an excellent update on Newmont's Long Canyon Project, Barrick's Turquoise Ridge and much, much more.

My MQ  column on gold's bullish path forward was also carried in the Elko Daily Free Press:

Gold, currencies and negative interest rates; The stars and planets of global monetary systems align for gold (September 8, 2016)

(Although not posted yet checkout the online Mining Quarterly soon!)

Happy reading!

Numbers used for analysis (September 30 early AM prices):

Bloomberg Commodity Index (BCOMTR:IND)

171.99 (low January 20, 2016 146.8798)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $47.90 per barrel 

Brent crude $ 49.04 per barrel 

Comex copper $2.2085 per pound

Comex gold $1,323.4 per troy ounce 

Comex silver $19.335 per troy ounce

Latest Nevada gasoline prices

View atop Devil's Gate (Spring 2012)

Eureka, Nevada

Early Bird View for October - A Good Month for Gold?

The Colonel remains bullish on the yellow metal

Morning Miners!

As I mention in my Kitco News brief (above), October could prove as uncertain for presidential candidates as for the price of gold. My bias is positive for the yellow metal given a possible Chinese yuan devaluation, election process cyber-hacking, new e-mail revelations, a worsening story for European banks and escalating tensions along the Indian/Pakistan border. Oh, throw in a major hurricane roaring through the Caribbean northward and you've got a setup for some fall excitement.

Or...Halloween may be the only scary day ahead and all these hobgoblins will disappear as quickly as frost on the pumpkin. Stay tuned..

Have a good weekend!

Cheers,

Colonel Possum

Photos by Mariana Titus if not otherwise noted

A Big Week Ahead for Gold Whether Bull or Bear - Colonel says $1,360

Diamond Mountains (Spring 2011)

Eureka, Nevada

Update Friday, September 23, 2016 AM

Comex gold $1,343.6 per troy ounce

Comex silver $19.880 per troy ounce

Comex copper $2.2045 per pound

Gold didn't quite make the $1,360-level this week but sure scared the hell out of $1,350 yesterday (intraday high $1,347.8 per ounce). Silver and copper got some much needed giddy-up too. Why? Central bank actions continue to benefit gold and there may a second move higher in October (see my Kitco News input below).

Here's some fun reading for the weekend. McEwen Mining's CEO Robert McEwen believes we may see $1,900 gold before the end of this year. McEwen Mining plans to begin mine construction in 2017 at the old Atlas Gold Bar pit north of Eureka. Finalization of permits is expected for the first quarter of next year. This is beyond exciting for us old timers that remember the Atlas mining days of yore. Here's the article that appeared in Bloomberg News this week:

Gold Bull McEwen Sees Prices as High as $1,900 by End of Year  (Bloomberg News, 9/20/2016)

My input to this morning's Weekly Kitco Gold Survey:

The Federal Reserve delayed raising interest rates and the Bank of Japan rolled out yet another experiment in monetary easing - the combination propelled gold to nearly $1,350 per ounce yesterday. Although there is some profit-taking as the week closes, the yellow metal may get second boost from the Peoples Bank of China (PBOC) in October.

On October 1st, the IMF will add the Chinese yuan to its honored basket of reserve currencies. There is evidence that the PBOC has been supporting their currency funded partially by a dramatic sale of U.S. Treasuries commencing in July. Recent wild swings in their offshore unsecured overnight lending rate (or HIBOR - notably with a spike this Monday to nearly 24%) are an effort to squeeze out speculators that bet on the yuan to weaken. Presumably these actions are to maintain currency stability prior to the IMF induction. 

After that fanfare, there may very well be an official devaluation that reflects less sanguine economic conditions in the world's second largest economy. Prior unexpected devaluations in August 2015 and January of this year caused market chaos and a bounce for gold price. A similar outcome in October keeps prices above $1,360 in play.

However, as September closes, there will likely be consolidation about $1,330 per ounce next week. 

My vote is down. Next week's target price for gold is $1,330; target for silver, $19.2 

Have a relaxing weekend.

Friday, September 16, 2016 AM 

Comex gold $1,313.4 per troy ounce
Comex silver $18.850 per troy ounce
Comex copper $2.1475 per pound

Astrological influences aside, things could get crazy for gold next week. My input to this morning's Weekly Kitco Gold Survey:

Next week, the summer will close with an epic battle of King Kong and Godzilla - the U.S Federal Reserve and Bank of Japan have [separate]  2-day meetings on the 20th-21st that could significantly impact gold price in either direction. The FOMC will decide the pace of future rate hikes which could include one next week; the BoJ is desperately trying to weaken the yen and will be reviewing their few remaining monetary tools to do so. 

The most bullish outcome for the yellow metal would be a Fed delay in interest rate hikes until December or beyond and a bold move by Japan that some believe could include "helicopter money." The hotter than expected CPI this morning adds another boost to this scenario since inflation expectations reduce the magnitude of real interest rates*.

The bearish outcome is a September rate hike and a BoJ that follows the ECB path earlier this month - talk a good game but forestall further accommodation decisions. Gold could take out its September high for the bullish case, bouncing above $1,360 per ounce. The bearish scenario test will surely shock test the $1,300 floor. A mixed outcome puts gold somewhere between these extremes.

As the Sun crosses the celestial equator on the 22nd, I'll wager with the bulls. If this proves wrong, any dip below $1,300 is a buying opportunity. It doesn't get more exciting than this.

My vote is Up. Target price for gold is $1,360; target for silver, $19.7

* real interest rates are approximately the nominal rate (what you read in the paper) less the expected inflation rate. Rising real rates are a significant headwind for gold. The Consumer Price Index (CPI), a measure of inflation, rose 0.2% for August versus an expected 0.1%. Core inflation for the year is 2.3% compared to the Federal Reserve target of 2.0%

(more commentary below...)

Fall Edition 2016 - Mining Quarterly

The Fall Edition 2016 of Mining Quarterly has hit the streets.

Marianne Kobak McKown has done another outstanding job creating a  terrific MQ which features a column by our old friend Adella Harding! There is an excellent update on Newmont's Long Canyon Project, Barrick's Turquoise Ridge and much, much more.

My MQ  column on gold's bullish path forward was also carried in the Elko Daily Free Press:

Gold, currencies and negative interest rates; The stars and planets of global monetary systems align for gold (September 8, 2016)

(Although not posted yet checkout the online Mining Quarterly soon!)

Happy reading!

Numbers used for analysis (August 26 early AM prices):

Bloomberg Commodity Index (BCOMTR:IND)

168.04 (low January 20, 2016 146.8798)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $43.46 per barrel 

Brent crude $ 46.30 per barrel 

Comex copper $2.1475 per pound

Comex gold $1,313.4per troy ounce 

Comex silver $18.850 per troy ounce

Latest Nevada gasoline prices

Godzilla (BoJ) versus King Kong (U.S. Federal Reserve)

A Big Week for Gold Next Week Whether Bull or Bear 

The Colonel remains bullish on gold

Morning Miners!

As I mention in my Kitco News brief (above) and in the last several reports, the meetings of two major central banks next week could be a big driver for gold - up or down. My thoughts on gold going forward are in the latest Mining Quarterly (also above) and a recent commentary for Kitco News:

In the Quiet of August, a Troubling Spike (September 8, 2016)

The bottom line is a fairly shiny future for the yellow metal in the light of the latest central bank monetary policies. Things may not bode so well for the commodity complex - on this point, I hope I'm wrong. Watch copper price for clues. More on this in the weeks to come.

Have a good weekend!

Photos by Mariana Titus if not otherwise noted