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