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

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) 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, August 19, 2016

Gold $1,350 - Are There Golden Trout in Jackson Hole?


Ackerman Ranch (2006)
Lander County, Nevada

Friday, August 19, 2016 AM 

Comex gold $1,348.5 per troy ounce
Comex silver $19.365 per troy ounce
Comex copper $2.1655 per pound

Gold pulls back on U.S. dollar bounce. My input to this morning's Weekly Kitco Gold Survey:

[U.K.] Prime Minister Theresa May's Friday announcement that she wants to leave Europe as "painlessly and quickly as possible" should remind investors that markets are still in a strong U.S dollar environment. This news and a hawkish take on what may transpire at the Jackson Hole meeting of Federal Reserve chiefs next week bounced the greenback sharply from its 7-week low.

Gold finds itself pulled in two directions; a stronger dollar is a headwind but monetary policy divergence between the U.S. and other central banks establishes a solid price floor around $1,300 per ounce. Negative interest rates around the world should maintain strong demand for [positive-yielding] U.S. Treasurys keeping the long end of the yield curve down even if the Fed raises short-term rates. This flattening should buffer gold somewhat from the curse of rising interest rates [in a low inflation environment] keeping $1,400 still in sight for 2016.

Against this backdrop, the yellow metal's relation to equities remains the key gold ratio to watch [see chart below]. If further rallies in domestic equities continue, a ratio below 0.6 is a bearish flag relative to the S&P 500. This morning's retreat of stocks and gold price finds that ratio at a shallow 0.62. This ratio was a strong 1.2 when Ben Bernanke gave his Jackson Hole speech 4 years ago presaging gold's painful downdraft in 2013. The ratio hit bottom at 0.5 in December 2015 as investors much preferred equities over gold. The ratio has since reversed but now shows some weakness.

On the bullish side for the yellow metal are continued macro-uncertainties which include the U.S. presidential election in November. 

My vote is down. Target price for gold is $1,340; target for silver, $19.2 

(more commentary below...)

Summer Edition 2016 - Mining Quarterly

The Summer Edition 2016 of Mining Quarterly is a good'un. Fall Edition coming soon!




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 (August 5 early AM prices):

Goldman Sachs Commodity Index

S&P GSCI 369.5, 08/16 contract (intraday low 279.25 1/20/2015)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $47.98 per barrel 
Brent crude $ 50.47 per barrel 
Comex copper $2.1655 per pound
Comex gold $1,348.5 per troy ounce 
Comex silver $19.365 per troy ounce

Latest Nevada gasoline prices


Main Street (2006)
Eureka, Nevada

Gold $1,350 - Are There Golden Trout in Jackson Hole?

The Colonel remains bullish on gold

Morning Miners!

As I mentioned in my Kitco News brief (above), gold is being pulled in two directions. The return of a strong U.S. dollar (it never really left) and threat of higher interest rates in the U.S. puts a downer on gold prices going forward...

BUT...(and this is a big butt, pardner)...

Central bankers of major economies continue to apply increasingly desperate monetary policies to spur growth and re-ignite inflation. One outcome has been negative-yielding bonds which now comprise nearly 30% of global debt - a real windfall for gold. I explain this golden paradox in the upcoming fall edition of the Mining Quarterly - in my view, net bullish for gold.

Sneak preview: the annual get-together of central bankers is next week at Jackson Hole, Wyoming and there may indeed be some golden trout left in those high mountain lakes.

Gold has outpaced all five major currencies (U.S. dollar, Japanese yen, euro, British pound sterling and Chinese yuan) in 2016. It is also up with good margin from its lowest price in all five during the commodity bust that started with the China slowdown in 2011. If nothing else, the yellow metal has proved to be a very effective currency hedge. With all the currency volatility before us, this condition should not change for quite sometime.

Secondly, gold's multi-year decline relative to stocks reversed this year. Although U.S. equities are making all-time highs, gold has still not lost its edge as shown in this chart of the gold-to-S&P500 ratio (AUSP):

(Click on plot for larger size)

The plot illustrates the importance of gold staying above the 0.6 level as mentioned in the above gold survey. Falling below this level would break the 2016 upward trend (dashed green line). Stay tuned.

Another 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.

Fortunately. 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 the policies of 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 ):

(Click on plot for larger size)

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 it has mostly been up and away ever since - a very bullish turn for gold in 2016.

Although gold price in euros has surpassed its 2015 high, price in yen terms has returned to a downward trend. No alarm bells yet but the divergence of these two plots with a strengthening yen is troubling.

2013 lows:

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

Friday AM (09/19/2016):

1,191.0 euros per ounce (+35.4% margin)
134,980.80 yen per ounce (+10.24% margin)

Have a fun weekend!



Cheers  - Colonel

Photos by Mariana Titus if not otherwise noted

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