"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, July 22, 2016

Gold Takes a Break at $1,320 - Where to Now?

Eureka, Nevada at Dusk

Friday, July 22, 2016 AM (Update)

Comex gold $1,320.4 per troy ounce
Comex silver $19.665 per troy ounce
Comex copper $2.2650 per pound

Gold & silver take a break. My input to this morning's Kitco Gold Survey:

A mixed week for gold. On the value front, gold gained on silver and oil but lost ground to copper and the S&P 500 - this give-and-take likely implies that gold price is taking a time out from its multi-month rally to stabilize around the $1,320-level.

Against this backdrop, the yellow metal's relation to equities is the key gold ratio to watch. The gold-to-S&P 500 (AUSP) steadily declined from November 2012 to December of last year [chart below, money shifts from safe havens to equities]. The 2016 gold rally reversed those fortunes propelled by central bank negative interest rates, the U.S. Federal Reserve's pause in rate hikes and market uneasiness caused by such worries as Brexit and Italian banks. The recent rally of U.S. equities to new highs blunted gold's advance.

The key AUSP ratio to watch is 0.6, falling below that level would be a very bearish indication for gold. At the $1,320-level this would imply danger ahead if the S&P 500 breaks 2,200 (less than 1.5% up from current trading). On the bullish side are continued macro-uncertainties which now include the U.S. presidential election process. Unexpected catalysts like a zika virus outbreak in the lower states have a much lower likelihood but nonetheless remain in the darker corners of concern. 

For a change, the currency front has been rather quiet for gold as the Bank of Japan and the ECB balked this week at further monetary stimulus (at least for now). The euro/yen cross rate has stabilized around 116 EUR/JPY suggesting that neither currency is gaining on the other. Gold in euros seems to hovering around 1,200 EUR per troy ounce; gold in yen terms finds comfort about 140,000 JPY per troy ounce. Pretty ho-hum compared to currency volatility earlier this year (1-month volatility of the euro is now less than 1%; for the yen, less than 2%). 

My vote is down (slightly). Target price for gold is $1,320; target for silver, $19.7

Take a clue from gold - take a break and have a fun weekend!

Gold's fortune's reversed to the upside this year!
(Click on chart for larger view)

Summer Edition 2016 - Mining Quarterly

Marianne Kobak McKown has done another outstanding job of getting the Mining Quarterly in step with this year's Mining Expo! There are excellent columns on Silver Strand's Marigold Mine, Newmont's conservation efforts at IL ranch, Jerritt canyon safety improvements, Barrick' Goldstrike and much, much more.

My column on silver's good year was also carried in the Elko Daily Free Press:

(Click on this link for the online Mining Quarterly)

Happy reading!

Numbers used for analysis (July 22 early AM prices):

Goldman Sachs Commodity Index

S&P GSCI 347.72, 08/16 contract (intraday low 279.25 1/20/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $44.18 per barrel 
Brent crude $ 45.61 per barrel 
Comex copper $2.2650 per pound
Comex gold $1,320.4 per troy ounce 
Comex silver $19.665 per troy ounce

Latest Nevada gasoline prices

Malarkey's - A tradition carries on
Eureka, Nevada

Gold Takes a Break at $1,320 - What's the Next Challenge?

Morning Miners!

As I mentioned in my Kitco News brief (above) it appears that gold price is seeking a stable level before the next catalyst appears. Goldman Sach's commodity guru Jeff Currie appeared on CNBC Business News this week to affirm his new target of $1,300 per troy ounce:

Gold's upside from here is limited, says Goldman's Currie (Michelle Fox CNBC Monday, 27 Jun 2016, 6:01 PM ET)

He believes the upside from here is rather limited, "One of the key reasons for that is the market is incredibly long. We've also seen a sharp decline in interest rates, particularly U.S. Treasurys, which suggests that we probably are topping out here..."

$1,300 is not a bad place to be, pardner - especially in gold country! To give his view some perspective, Currie and others warned that gold could see triple-digits a few years ago. His target for 2015 was $1,050 per ounce, now $1,300 for 2016. That's trending in the right direction.

I recently upped my upper price target to $1,400 but that would take a new catalyst and a Federal Reserve that continues a "lower-for-longer" interest rate stance. That's OK, I worry more about lows than highs and we've got a very solid foundation below today' prices. Dovish central banks around the world have caused trillions of dollars to now earn negative interest rates. This puts in a floor for gold around $1,200 to $1,250 per troy ounce. Look at this chart that appeared in the Wall Street Journal recently (click for larger view):

The pool of global debt is north of $44 trillion dollars (blue) and $13 trillion is now negative-yielding (30%). Given slowing global growth and increasing market uneasiness, gold becomes an attractive place to go - it sure beats paying a bank to hold your money!

By my calculation, based on oil (WTI), silver and copper prices, the commodity value of the yellow metal is about $1,140-$1,160. This is the basement below the central banks but far above the $1,050-level and way-way above a triple-digit dungeon.

I'm a gold buyer below $1,300. As this report often reminds readers, "please do your own research, markets can turn on you faster than a feral cat."

Cheers  - Colonel

Photos by Mariana Titus if not otherwise noted

1 comment:

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