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


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

Friday, April 15, 2016

$16-plus: Silver Steps Out from Gold's Shadow

Ackerman Ranch
Eureka Miner, April 2011

Month-end Update (April 29, 2016): Gold, Silver Soar

I'm preparing to go on the road so this will be a short one, pardner. Had to stop packing to watch gold and silver soar; even copper is above $5,000 per tonne this morning on a falling U.S. dollar.

8:59 AM Eureka time:

Comex gold [6/16] $1,298.4 per ounce (today's high $1,295.5)
Comex silver [7/16] $17.935 per ounce (today's high $18.005)
Comex copper [7/16] $2.2760 per pound (today's high $2.2825 or $5,032 per tonne)

This is how I described market conditions in my input to the Weekly Kitco News Gold Survey:

Never has so much come from nothing. The U.S. Federal Reserve and Bank of Japan announced no change in policy this week sending shock waves through global markets.

The Japanese yen continues to be the currency to watch; from dollar strength earlier this month to an even stronger dip below JPY 107 today. Here's the good news: even with the yen surge, the USD gold rally is gaining strength on the yen. Gold in yen terms is up 1.8% from yesterday, rather impressive.

My big picture remains that gold prices will continue in a trading range, trapped between a floor of negative interest rates (Europe, Japan) and a cap determined by the U.S. interest rate trajectory. This week's monetary inaction has moved the cap higher, perhaps $1,310 per ounce.

The 3-month correlations with oil and copper remain noticeably positive (>+0.5) with shorter term correlations in the green too. This week gold gained a bit on copper but lost ground to rising oil and soaring silver. Importantly, last week the gold-to-silver ratio broke a multi-year trend of higher-lows [chart below]

Silver is having a bullish run for 2016 indeed. I believe it likely that gold will pause to catch its breath next week finding some comfort on the $1,280 per ounce veranda.

My vote is down. Target for next week $1,280 per ounce.

Kitco News Editor Neils Christensen responded, "Wow you are a Debbie downer but no lone wolf."

I replied, "Ha! New bull horns and nose ring but I still have my bear pants on!"

Christensen got the last laugh, "Ha ha ha. Sort of like a messed up Minotaur."

Here's the gold-silver chart that got things rolling (click for larger image):

Hi Ho Silver Away!

Please checkout my latest Kitco News commentary: 

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:

"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:

Please checkout Mariana's Eureka, Nevada on Facebook

Numbers used for analysis (early AM prices):

Goldman Sachs Commodity Index

S&P GSCI 330.70, 04/16 contract (intraday low 279.25 1/20/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $40.11 per barrel 
Brent crude $ 42.82 per barrel 
Comex copper $2.1405 per pound
Comex gold $1,228.4 per ounce 
Comex silver $16.145 per ounce

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

iShares iBoxx $ High Yield Corporate Bond (HYG) $82.45 ($75.09 52-week low)

Trouble ahead: HYG < $82...promising reversal to the upside

Latest Nevada gasoline prices

Oldies but Goodies

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. 

Here's an oldie from April 11, 2011:

It was another record breaker over the weekend and in the early morning hours of Monday but a small U.S. dollar bounce has paused the advance. NYMEX oil and COMEX gold running together like twins joined at the hips set new highs on Sunday at 18:00 ET posting $113.46/bbl and $1478.0/oz respectively. Brent oil made its new crisis high at Friday's close at $126.47/bbl. COMEX silver waited for the crowd to leave the room then made a bold run at $42/oz with its new 31-year record of $41.98/oz.

There is a growing consensus that global growth and our own domestic recovery will run into serious headwinds if we spend too much time in the $110-$120/bbl pasture...

Those were the days!

Eureka Miner, April 2011

Silver Steps Out from Gold's Shadow

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

Wild cards: Terror events, Brexit, "lower for longer" commodity pricesfate of high yield bonds

Gold bet for next week: $1,235 per ounce

Morning Miners!

A good friend of mine collects silver coins. I wrote him on the 29th of December, "I think silver is starting to look a bit interesting. I added to a position yesterday when prices fell near 5-1/2 year lows."

It turned out to be a good call. 

Gold has certainly had a run this year, but so has silver. As of yesterday's closing prices, both metals are up 18% while equity markets struggle to make single digits for 2016. Back in the day (which wasn't that long ago, see today's "Oldies but Goodies"), silver typically raced ahead of gold when both rallied. Daily gains of 1.5 to 2.0 times gold's advance were not uncommon for the white metal. Traders call this "beta" where a beta exceeding 1.0 implies greater percentage moves compared to its reference - in this case gold price. For quite some time, silver performance has lagged gold scoring a lowly 3-month beta of only 0.75. 

All that may be changing  in silver's favor, pardner. Here are my most recent thoughts on both gold and silver for today's Weekly Kitco Gold Survey:

Comex gold charged like a lion Tuesday breaking into $1,260 territory but appears to be exiting the week as a lamb trading this morning at $1,228.4 per ounce. The yellow metal is also weaker against key commodities oil and copper as well as major currencies euro and yen. The FX markets appear to be stabilizing with the yen falling back from recent notable strength (4/12, JPY 107.64) and the euro recovering from its March weakness (3/16, EUR 1.0869). The dollar index (.DXY), down 5% from its late January high, will probably trend somewhat higher. With these cross-currents, gold will likely find some middle ground from its recent high and late-March low. My target for next week is $1,235 per ounce.

Yesterday, Comex silver made its 2016 high at an impressive $16.27 per ounce as gold-to-silver ratio (GSR) transitions from dull to exciting. A trend of higher ratio lows began in late-November 2012 and is key to watch in the coming weeks. Today, the GSR is a strong 76.1 oz/oz; if it breaks below 75, the 3-1/2 year trend of gold gaining value over silver will be broken. Something to watch for silver bulls.

My vote is up. Target gold price $1,235 per ounce.

Let's see if the GSR breaks 75 and the 3-month beta moves back above 1.0 in the coming weeks. Please do your own research, silver can be a widow maker as well as hero my friend!

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. 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 that continues from mid-March.

2013 lows:

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

Friday AM (04/15/2016):

1,087 euros per ounce (+23.6% margin)
133,639 yen per ounce (+9.4%% margin < 10%, worrisome)

Market Stats

Here's the scorecard on the stock market, S&P 500 is at 2,079 (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-February "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 and the December high (2,081.56) was breached several times this week.  A sustained rally above this level would be bullish.

Cheers - Colonel

Photos by Mariana Titus

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