Comex gold $1,273.5 per troy ounce
Interest rates are on the rise with an expected U.S. Federal Reserve hike expected for December. This was allied this morning with a better-than-expected GDP of 2.9%. However, inflation expectations are also increasing blunting to some extent the rise in rates and negative effect on gold price. Money moving away from Treasurys as a safe haven option is also supportive for gold.
The yen continued to weaken from the key-100 USDJPY level; a bullish indication for gold. Moving above 105 USDJPY this morning affirms the uptrend which is encouraging because both often compete for safe haven status (by contrast, gold in yen terms came perilously close to it 2013 low earlier this month)
The Bloomberg Commodity Index (BCOMTR:IND) continues to trend higher from its January low (up more than 17% to date). In turn, key gold ratios are reverting to mean trend lines from recent unsustainable levels. For example, in early-September an ounce of gold fetched a record 644 pounds of the red metal; this morning, a more reasonable 580. From a commodity viewpoint gold prices are stabilizing [see graph below].
I therefore remain cautiously bullish near term with uncertainties surrounding the U.S. election still in play.
Have a good weekend!
This six-year chart illustrates the record rise in gold value relative to oil and copper to unsustainable levels. The rising trend started in October 2014 at the end of U.S. quantitative easing (the printing of dollars to buy bonds) and the concurrent collapse of the global oil market. There are now signs of market rebalancing as oil and copper prices rebound and gold price stabilizes:
Comex gold $1,263.3 per troy ounce
Comex silver $17.590 per troy ounce
Comex copper $2.1750 per pound
What a week it was for gold! My input to this morning's Weekly Kitco Gold Survey:
A week that features a 5% drop in gold prices and an even greater drop in a major reserve currency is certainly one to remember. A mildly worse-than-expected U.S. jobs report, an ECB hinting a QE taper and a historic hurricane in Florida mixes up a witches' brew for predicting the next move in gold prices.
Although the precipitous drop in the British pound may have been initiated by robot trading and the gold selloff by a large liquidation [see below], downward momentum for both is now in play. I continue to believe the actions of major central banks outside the U.S. have established a floor under gold price with negative interest rates and increasingly experimental monetary policies. This week challenged that floor but prices should recover some even with a more likely December hike in U.S. interest rates.
It is important to remember that the Chinese have been off all week on holiday and have not voted in gold's fortunes. Upcoming holidays and celebrations in both China and India should boost physical demand. I therefore remain cautiously bullish near term with uncertainties surrounding the U.S. election still in play and questionable soundness of the European banking system.
I think the yen is very important to watch posing one of the greatest challenges to the yellow metal this week. Gold in yen terms is fast approaching its 2013 low (within 6% this AM), a very bearish indication for gold prices [see chart below]. There is probably a little more short term pain ahead next week.
My vote is down. Target price for gold next week is $1,240; target for silver, $17.2
(see more commentary at the bottom of this report...)
Chart to Watch
Here's a chart we've watched before. It is the price margin of gold (%) from its 2013 lows in terms euro and Japanese yen (euros per troy ounce, yen per troy ounce). Click on the image for a larger size:
The Fall Edition 2016 of Mining Quarterly has hit the streets.
Searching through some old Eureka Miner photos, I found today's picture of the Alpine Lodge (with the missing "N") from September 2012. The caption is a good one for understanding the market this week. Brown Brothers has since done a great job stabilizing this historic building and eliminating a lot of its less-square features.
I've watched about 90 monthly jobs reports on CNBC Business News and reported on most since the darkest days of 2009. It is deemed among the most significant data for markets since employment is a key indicator of the health of our economy. Also, because "full employment" and price stability (i.e. some but not a lot of inflation) are key goals of the Federal Reserve's dual-mandate, these data greatly influence the pace and magnitude of future interest rate hikes. Rising interest rates in a low inflation environment are a significant headwind for gold...so set the alarm at 5:00 a.m. and await the news every first Friday of the month!
An important voice for the Fed's direction has been coming lately from Lorreta Mester - President and Chief Executive Officer, Federal Reserve Bank of Cleveland. Her comments about the wisdom and timing of future hikes contributed in part to gold's down swoon this week. She said,"We have to be a little preemptive in making sure that we're moving the interest rate up so that we can keep the expansion sustained."