Gold & Oil: A Historical Ratio Turns Bad
Editor Marianne Kobak McKown has down another excellent job with the Spring Edition. Important updates on Newmont, Jerritt Canyon, Pershing Gold at Relief Canyon and much, much more!
Please read my update on gold prices in the latest Mining Quarterly - gold is showing glitter, pardner.
The online version:
Oldies but Goodies
Here's an oldie from the Thursday before Easter 2011:
It is 5:39 AM. Have a welcome cup of Thor's Day Thunder. Our favorite Norseman and Old Miner Woden are painting Easter eggs. Thor forgot to boil the first batch so we may be having scrambled eggs with shells for breakfast.
Gold $1510; Silver $46.3
You know the drill by now, pardner: start the day with new records for gold and silver. For a change, COMEX silver got to the party first - 7:00 AM bright and early with the paparazzi snapping photos at $46.27/oz. COMEX gold dropped by 20 minutes later doing high fives at $1509.6/oz but the crowds barely noticed. Silver stole the show again.
Remember $50 per ounce silver - ha!
After terror in Europe, more loops and hoops in presidential primaries and a resurgent U.S. dollar, the ole Colonel is more than ready for an Easter break - have a relaxing weekend, pardner..
My morning input to the Weekly Kitco Gold Survey:
The Easter bunny will not find too many golden eggs in his basket this holiday.
Not even a tragic terror event in Europe could reverse the recent downtrend in the yellow metal as it joins falling commodities and loses ground to the U.S. dollar, euro and yen. Gold is again seeking equilibrium between diverging monetary policies - BoJ & ECB ventures into negative interest rate territory establish a price floor; recent hawkish U.S. Fed hints about an April rate hikes create a price cap. At least in the near term, gold prices are likely range bound between $1,110 and $1,280 per ounce.
Gold has failed to take out its March highs in euro and yen terms. For the near term, I'm keeping on my old moth-eaten bear suit until there is an upward reversal in gold ratios and/or currency trends.
Key levels to watch:
March highs (per ounce): EUR 1,157, JPY 144,680
January 2015 highs (per ounce): EUR 1,160, JPY 153,270
This morning: EUR 1,095, JPY 137,290
All-in-all the Lone Wolf is bearish near term.
My vote is down. Next week’s target $1,210 per ounce.
One curious aspect of the copper market is the build in inventory at the Shanghai Futures Exchange (SHFE) warehouses compared to London Metal Exchange (LME) and COMEX stocks. As of March 24th:
SHFE 394,777 tonnes
LME 151,375 tonnes
COMEX 71,541 tonnes
This week the SHFE inventory expanded by an additional 44,639 tonnes; the LME by only 700!
In more normal times the inventories are lower at the SHFE than in Western futures markets. This confuses real and speculative demand for the red metal. China comprises 45% of global copper demand. Something to watch in 2016.
Freeport reverses down
Copper mammoth and benchmark miner Freeport McMoRan (FCX) follows copper down this morning at $9.18 per share. This is still considerably up from its January low of $3.52 - a 161% improvement. As a point of disclosure, the ole Colonel reduced his position in FCX after the Draghi announcement this month.
Barrick & Newmont pause
Nevada's two big mining giants are still recovering from the depths of 2015 and both are off from last Friday AM prices. However, from September's low of $5.91 per share, Barrick Gold (ABX) is up 125% to trade at $13.31 this morning. Newmont (NEM) is up 80%; from a September $15.43 to $27.79 per share.
Gold price margins from 2013 lows (euro, yen)
A disturbing aspect of gold's 2015 decline in USD was the concurrent collapse in euro and yen terms.
The yellow metal has stayed above its 2013 lows in terms of both currencies. The percent margin above those bottoms peaked in late January 2015 and then trended down with the divergence of US monetary policy from Europe and Japan, and the associated rise of the US dollar. (click on chart for larger image, an earlier version of this chart appears in Spring 2016 Mining Quarterly ):
Declining value of gold relative to a devalued currency is a red flag. January witnessed a key reversal in this downtrend for both euro and yen and then it was up and away - a bullish turn for gold. We are now witnessing a bearish reversal in this recovery.
879.64 euros per ounce on 12/20/2013
122,443 yen per ounce on 6/28/2013
Friday AM (03/24/2016):
1,095 euros per ounce (+24.4% margin)
137,290 yen per ounce (+12.1% margin)
Here's the scorecard on the stock market, S&P 500 is at 2,028 (Friday AM):
S&P 500 high: 2,134.72, 5/20/2015
Then from the late December high, the February downdraft:
S&P 500 high: 2,081.56, 12/29/2015
S&P 500 low: 1,810.10, on 2/11/2016 down 13.0% & 15.2% from 5/20/2015 high
S&P 500 bear market begins below 20% at 1,707.78
We're now above the Dec-Feb fib box and the 2,000- level. Tenuously bullish...but be careful.