Early Bird View for October - A Good Month for Gold?

Eureka Rodeo (Spring 2012)

Eureka, Nevada

Friday, September 30, 2016 AM 

Comex gold $1,323.4 per troy ounce
Comex silver $19.335 per troy ounce
Comex copper $2.2085 per pound

October may prove to be quite a ride for gold. My input to this morning's Weekly Kitco Gold Survey:

An early bird view for October:

The environment facing gold in the remaining months of 2016 is reminiscent of Secretary of Defense Don Rumsfeld's famous quote about known knowns, known unknowns and unknown unknowns.

Known knowns 

We know actions of major central banks outside the U.S. have established a solid floor under gold price around $1,300 per ounce with negative interest rates and increasingly experimental monetary policies. 

Known unknowns 

The U.S. Federal Reserve is committed to future rate increases but with unknown timing. The Damocles sword of future increases puts a price cap at roughly $1,400 per ounce.

On October 1st, the IMF includes the Chinese yuan in its honored basket of reserve currencies. Prior to Saturday's event, the Chinese currency has demonstrated abnormally low levels of volatility (note 1, moon rocks). We know the yuan will restart a devaluation trajectory once it's in the club but with unknown pace and magnitude. A surprise devaluation could rally gold and potentially crater global markets as it did August '15 and January of this year. A gradual pace may go almost unnoticed.

Finally, gold in yen terms has resumed its multi-month downward trend. Revisiting its 2013 low would be very bearish for the yellow metal - it fell within 9% of this low mark Wednesday (note 2). The key level to watch is USD/JPY 100. If, as some experts believe (note 3, Sakakibara), the yen is headed for 90 then gold would have to stay above $1,360 per ounce to avoid a new low - a significant challenge. Recent attempts to strengthen this currency have failed, the success of future BoJ policies is unknown. 

Unknown unknowns 

A range of exogenous possibilities surrounding the U.S. election process including cyber-tampering of election results and new e-mail revelations top the list of unknown unknowns. The outbreak of hostilities between India and Pakistan and a banking crisis contagion spreading from Deutsche Bank woes are also on October's growing list of hobgoblins. As October begins, I bet one or more bullish outcomes is in the cards.

My vote is up. Target price for gold next week is $1,330; target for silver, $19.2

Have a relaxing weekend.

Note 1: The 1-month volatility of the yuan is a startling 0.082% (% SD variation about an average 6.6697 USD/CNY) Here's a 1-month volatility comparison with USD, EUR & JPY:

USD (UUP) 4.1X more volatile than CNY (yuan)
EUR (euro) 3.9X
JPY (yen) 10.9X

The PBOC is presumably allowing market forces to determine value about their managed peg against a basket of currencies. Given the volatility comparisons, the basket must lately contain a lot of moon rocks!

Note 2: Gold competes with the yen as a safe haven asset. Losing value to the yen is thereby bearish; breaching its 2013 low, very bearish.

Note 3: Bloomberg column, 9/26/2016:

BOJ Policy Exhaustion Means Yen Will Rise to 90, SakakibaraSays

(more commentary below...)

Fall Edition 2016 - Mining Quarterly

The Fall Edition 2016 of Mining Quarterly has hit the streets.

Marianne Kobak McKown has done another outstanding job creating a  terrific MQ which features a column by our old friend Adella Harding! There is an excellent update on Newmont's Long Canyon Project, Barrick's Turquoise Ridge and much, much more.

My MQ  column on gold's bullish path forward was also carried in the Elko Daily Free Press:

Gold, currencies and negative interest rates; The stars and planets of global monetary systems align for gold (September 8, 2016)

(Although not posted yet checkout the online Mining Quarterly soon!)

Happy reading!

Numbers used for analysis (September 30 early AM prices):

Bloomberg Commodity Index (BCOMTR:IND)

171.99 (low January 20, 2016 146.8798)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $47.90 per barrel 

Brent crude $ 49.04 per barrel 

Comex copper $2.2085 per pound

Comex gold $1,323.4 per troy ounce 

Comex silver $19.335 per troy ounce

Latest Nevada gasoline prices

View atop Devil's Gate (Spring 2012)

Eureka, Nevada

Early Bird View for October - A Good Month for Gold?

The Colonel remains bullish on the yellow metal

Morning Miners!

As I mention in my Kitco News brief (above), October could prove as uncertain for presidential candidates as for the price of gold. My bias is positive for the yellow metal given a possible Chinese yuan devaluation, election process cyber-hacking, new e-mail revelations, a worsening story for European banks and escalating tensions along the Indian/Pakistan border. Oh, throw in a major hurricane roaring through the Caribbean northward and you've got a setup for some fall excitement.

Or...Halloween may be the only scary day ahead and all these hobgoblins will disappear as quickly as frost on the pumpkin. Stay tuned..

Have a good weekend!

Cheers,

Colonel Possum

Photos by Mariana Titus if not otherwise noted

A Big Week Ahead for Gold Whether Bull or Bear - Colonel says $1,360

Diamond Mountains (Spring 2011)

Eureka, Nevada

Update Friday, September 23, 2016 AM

Comex gold $1,343.6 per troy ounce

Comex silver $19.880 per troy ounce

Comex copper $2.2045 per pound

Gold didn't quite make the $1,360-level this week but sure scared the hell out of $1,350 yesterday (intraday high $1,347.8 per ounce). Silver and copper got some much needed giddy-up too. Why? Central bank actions continue to benefit gold and there may a second move higher in October (see my Kitco News input below).

Here's some fun reading for the weekend. McEwen Mining's CEO Robert McEwen believes we may see $1,900 gold before the end of this year. McEwen Mining plans to begin mine construction in 2017 at the old Atlas Gold Bar pit north of Eureka. Finalization of permits is expected for the first quarter of next year. This is beyond exciting for us old timers that remember the Atlas mining days of yore. Here's the article that appeared in Bloomberg News this week:

Gold Bull McEwen Sees Prices as High as $1,900 by End of Year  (Bloomberg News, 9/20/2016)

My input to this morning's Weekly Kitco Gold Survey:

The Federal Reserve delayed raising interest rates and the Bank of Japan rolled out yet another experiment in monetary easing - the combination propelled gold to nearly $1,350 per ounce yesterday. Although there is some profit-taking as the week closes, the yellow metal may get second boost from the Peoples Bank of China (PBOC) in October.

On October 1st, the IMF will add the Chinese yuan to its honored basket of reserve currencies. There is evidence that the PBOC has been supporting their currency funded partially by a dramatic sale of U.S. Treasuries commencing in July. Recent wild swings in their offshore unsecured overnight lending rate (or HIBOR - notably with a spike this Monday to nearly 24%) are an effort to squeeze out speculators that bet on the yuan to weaken. Presumably these actions are to maintain currency stability prior to the IMF induction. 

After that fanfare, there may very well be an official devaluation that reflects less sanguine economic conditions in the world's second largest economy. Prior unexpected devaluations in August 2015 and January of this year caused market chaos and a bounce for gold price. A similar outcome in October keeps prices above $1,360 in play.

However, as September closes, there will likely be consolidation about $1,330 per ounce next week. 

My vote is down. Next week's target price for gold is $1,330; target for silver, $19.2 

Have a relaxing weekend.

Friday, September 16, 2016 AM 

Comex gold $1,313.4 per troy ounce
Comex silver $18.850 per troy ounce
Comex copper $2.1475 per pound

Astrological influences aside, things could get crazy for gold next week. My input to this morning's Weekly Kitco Gold Survey:

Next week, the summer will close with an epic battle of King Kong and Godzilla - the U.S Federal Reserve and Bank of Japan have [separate]  2-day meetings on the 20th-21st that could significantly impact gold price in either direction. The FOMC will decide the pace of future rate hikes which could include one next week; the BoJ is desperately trying to weaken the yen and will be reviewing their few remaining monetary tools to do so. 

The most bullish outcome for the yellow metal would be a Fed delay in interest rate hikes until December or beyond and a bold move by Japan that some believe could include "helicopter money." The hotter than expected CPI this morning adds another boost to this scenario since inflation expectations reduce the magnitude of real interest rates*.

The bearish outcome is a September rate hike and a BoJ that follows the ECB path earlier this month - talk a good game but forestall further accommodation decisions. Gold could take out its September high for the bullish case, bouncing above $1,360 per ounce. The bearish scenario test will surely shock test the $1,300 floor. A mixed outcome puts gold somewhere between these extremes.

As the Sun crosses the celestial equator on the 22nd, I'll wager with the bulls. If this proves wrong, any dip below $1,300 is a buying opportunity. It doesn't get more exciting than this.

My vote is Up. Target price for gold is $1,360; target for silver, $19.7

* real interest rates are approximately the nominal rate (what you read in the paper) less the expected inflation rate. Rising real rates are a significant headwind for gold. The Consumer Price Index (CPI), a measure of inflation, rose 0.2% for August versus an expected 0.1%. Core inflation for the year is 2.3% compared to the Federal Reserve target of 2.0%

(more commentary below...)

Fall Edition 2016 - Mining Quarterly

The Fall Edition 2016 of Mining Quarterly has hit the streets.

Marianne Kobak McKown has done another outstanding job creating a  terrific MQ which features a column by our old friend Adella Harding! There is an excellent update on Newmont's Long Canyon Project, Barrick's Turquoise Ridge and much, much more.

My MQ  column on gold's bullish path forward was also carried in the Elko Daily Free Press:

Gold, currencies and negative interest rates; The stars and planets of global monetary systems align for gold (September 8, 2016)

(Although not posted yet checkout the online Mining Quarterly soon!)

Happy reading!

Numbers used for analysis (August 26 early AM prices):

Bloomberg Commodity Index (BCOMTR:IND)

168.04 (low January 20, 2016 146.8798)

Nymex/Comex (most active contracts)

Nymex oil (WTI) $43.46 per barrel 

Brent crude $ 46.30 per barrel 

Comex copper $2.1475 per pound

Comex gold $1,313.4per troy ounce 

Comex silver $18.850 per troy ounce

Latest Nevada gasoline prices

Godzilla (BoJ) versus King Kong (U.S. Federal Reserve)

A Big Week for Gold Next Week Whether Bull or Bear 

The Colonel remains bullish on gold

Morning Miners!

As I mention in my Kitco News brief (above) and in the last several reports, the meetings of two major central banks next week could be a big driver for gold - up or down. My thoughts on gold going forward are in the latest Mining Quarterly (also above) and a recent commentary for Kitco News:

In the Quiet of August, a Troubling Spike (September 8, 2016)

The bottom line is a fairly shiny future for the yellow metal in the light of the latest central bank monetary policies. Things may not bode so well for the commodity complex - on this point, I hope I'm wrong. Watch copper price for clues. More on this in the weeks to come.

Have a good weekend!

Photos by Mariana Titus if not otherwise noted