Gold Soars on Mixed Jobs Report; Have Commodities Bottomed?

Ackerman Ranch

Eureka Miner, March 2011

Update Tuesday Morning (3/08/2016)

Oh-oh copper...Freeport McMoRan (FCX) down 11% early trading...

DOW JONES & COMPANY, INC. 7:13 AM ET 3/8/2016 Copper futures fell Tuesday, after declines in Chinese trade data triggered concerns that the top metal consumer is continuing to slow economically despite government interventions. Copper for May delivery was recently down 2.2% at $2.2340 a pound on the Comex division of the New York Mercantile Exchange.

Exports from China dropped 25.4% in February compared with a year earlier, according to data from the General Administration of Customs released Tuesday. The figure constituted the eighth monthly drop in a row and was "significantly poorer than anticipated," said Commerzbank AG in a note. China accounts for roughly 45% of global copper demand, so metal prices follow the country's economic fortunes closely. Plans by the Chinese government to reduce housing inventory are likely to weigh on copper prices, according to Goldman Sachs Group Inc.

Before you get too depressed, there are seasonal issues here. Remember that during the  one week Lunar New Year holiday not too many fortune cookies leave for distant shores....Colonel

Please checkout my latest Kitco News commentary 2/29/2016:

Gold & Oil: A Historical Ratio Turns Bad

Mining Quarterly

The Spring 2016 Spring Edition of the Mining Quarterly is here!

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:

Spring 2016 Mining Quarterly

"Click to read" and the online version looks much like the printed magazine. My column on gold prices for 2016 starts on page 52 (page 50 printed version). Press "Esc" to return to the Elko Daily Free Press. There is a handy scroll bar for page selection at the bottom of the screen. The same article appeared in the Elko Daily Free Press March 3:

Commentary: A Bullish Turn for Gold

***

Please checkout Mariana's Eureka, Nevada on Facebook

Numbers used for analysis (early AM prices):

Goldman Sachs Commodity Index

S&P GSCI 304.52, 03/16 contract (intraday low 279.25 1/20/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $34.57 per barrel 

Brent crude $ 37.50 per barrel 

Comex copper $2.2365 per pound

Comex gold $1,276.4 per ounce 

Comex silver $15.640 per ounce

Canary in the gold mine: Fate of high yield corporate bonds

iShares iBoxx $ High Yield Corporate Bond (HYG) $80.58 ($75.09 52-week low)

Trouble ahead: HYG < $82...lower but up lately....

Latest Nevada gasoline prices

Ackerman Ranch

Eureka Miner, March 2011

Gold Soars on Mixed Jobs Report

Macro drivers: Continued concerns about China, commodity-exporting economies; U.S. Federal Reserve interest rate trajectory 

Wild cards: Brexit, "lower for longer" commodity prices, fate of high yield bonds

Gold bet for next week: $1,300 per ounce

This month the Eureka Miner celebrates its 7th year of bringing market news to Eureka County. For old times sake, the ole Colonel will feature photos and excerpts from the past in this report and ones to follow.

Morning Miners!

5:30 AM (Eureka time), the Labor Department released its February nonfarm payroll report. The NFP is an all important indicator of U.S. economic health, closely watched not only here but in markets worldwide. This results are mixed. On the positive, employment increased in February to a better-than-expected 242,000 jobs with an employment rate holding steady  at 4.9%.

On the darker side, average hourly wage growth for February declined 3 cents to $25.35, following an increase of 12 cents in January. This suggests continued slack in the labor force which some believe is a more important data point than employment rate for the Federal Reserve timing of the next interest rate bump up. 

Not unexpectedly, mining employment declined another 19,000 in February with most losses in support activities. Strong sectors were in health care, retail trade, education and construction. The participation rate remains unchanged from February 2015 at a lackluster 68.2%.

All-in-all, a few morning commentators believe the mixed report moves market participants from "a recession is coming" to a "still muddling along" sentiment. This is enough to keep the gold rally alive and well. My morning input to the Weekly Kitco Gold Survey:

After passing this morning's U.S. labor report test with flying colors, the next big challenge for gold is the upcoming ECB meeting on March 10. With great irony, today's rally brings gold (EUR 1,158 per ounce) within just a few euros of last year's peak when Mario Draghi introduced the ECB's "shock and awe" monetary easing program. That announcement began a one-year decline in gold priced in U.S. dollars, euros and Japanese yen. What will be the reaction this year?

This year has seen as many expectation flip-flops in the metals complex as in the U.S. electoral process. Last year's January reaction to the ECB announcement turned the gold market bearish; this year may be bullish lift given continued fears of Brexit in June. Other upbeat signs for gold are positive re-correlations with global commodities oil and copper - presently all three are trending higher.

Gold and Japanese yen continue to compete as safe haven trades with the yellow metal gaining on yen accelerating recent gains. Gold is a healthy 18% above its 2013 low in that currency and a very impressive 32% higher in euro. Yellow metal progress against major devalued currencies continues to be a bullish indication.

All-in-all the Lone Wolf is bullish and ups last week's target price.

My vote is up. Next week’s target $1,300 per ounce.

Some of my thoughts found there way into the Kitco Friday outlook: 

Gold Could Rally Next Week On Currency Devaluation Fears - Analysts

The red metal continues its advance too. I thought copper may return to the sub-$2 basement after the Chinese traders returned from New Year holiday. Instead, copper got a bid rising from its February 11 low of $1.998 per pound to this morning's trade at $2.234, a nearly 12% rise.

Freeport still up-up

Copper mammoth and benchmark miner Freeport McMoRan (FCX) continues to show signs of life trading at $9.62 per share up from its January low of $3.52 - a 173% improvement!

Barrick & Newmont continue on a Roll

It is exciting to witness Nevada's two big mining giants recovering from the depths of 2015. From September's low of $5.91 per share, Barrick Gold (ABX) is up 149% to trade at $14.69 this morning. Newmont (NEM) is up a welcome 76%; from a September $15.43 to $27.12 per share.

Have Commodities Bottomed?

Wells Fargo Metals Director Janet Mirasola had this note in yesterday's pre-market brief:

Global markets are adding risk across the board as global recession fears faded supported by a strong suggestion from [Glencore CEO] Ivan Glasenberg that “Commodities have bottomed” taking a “whatever it takes” leaf from Draghi’s book. No matter that a major bank can lose 11% of value in a single morning or that China PMI can record its lowest result of 49.0 since November 2011. All these markets need obviously is a little confidence to see Portfolio Managers happy to add risk across most asset classes. Overnight the MSCI Asia Pacific Index rose 2.5% to its highest level since early January while the Nikkei surged by 4.11%. Shanghai Shares breathed a huge sigh of relief as they rallied hard closing up 4.26% by end of day.

Hmm...I note a hint of skepticism. The Goldman Sachs Commodity Index (GSCI, see below headline photo) is above 300 after plunging to 279 in January. Comex copper is handily above its January low and oil is back in the mid-$30 per barrel range. The ole Colonel is not quite ready to call a victory but the signs are indeed encouraging. Remember the old adage,"bottoming is a process, not a price."

Chart to Watch

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. Fortunately, January witnessed a key reversal in this downtrend for both euro and yen and it has been up and away ever since - a very bullish turn for gold.

2013 lows:

879.64 euros per ounce on 12/20/2013
122,443 yen per ounce on 6/28/2013

Friday AM (03/04/2016):

1,157.84 euros per ounce (+31.6% margin)
144,681 yen per ounce (+18.2% margin)

Market Stats

Here's the scorecard on the stock market, S&P 500 is at 1,987.72 (Friday AM):

Market corrections are generally defined as a 10% or greater move to the downside from the top of a key index. I like to use the S&P 500 (.SPX) because it includes a broader swath of America' best companies than the Dow Jones Industrial (.DJIA) - five hundred compared to thirty. Here is the score sheet of ups and downs on an intraday basis since May:

August downdraft:

S&P 500 high: 2,134.72, 5/20/2015

S&P 500 10% correction 1,921.25

S&P 500 low: 1,867.01, on Monday 8/24/2015 down 12.5%

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

For Fibonacci folks the December-January "fib box" is:

50.0% retracement from 2/11 low = 1,946

61.8% retracement from 2/11 low = 1,978

Getting inside the "fib box" is generally considered a "bullish" move to the upside; failing the "fib box" is a bearish indication.

We're now above the Dec-Feb fib box - definitely a bullish indication.

Cheers - Colonel

Photos by Mariana Titus