Happy Veteran's Day from Louisiana!

Happy Veteran's Day from Louisiana

Friday, November 11, 2016 AM (Vacation Special)

(Update 10:26 a.m. Eureka time)

Comex gold $1,229.4 per troy ounce
Comex silver $17.520 per troy ounce
Comex copper $2.5075 per pound

What a week it was for gold! My input to this morning's Weekly Kitco Gold Survey:

From my bayou perch in Franklin, Louisiana, I believe a key driver for gold is the ascension of copper price. Even before the volatility of the November election, gold began a normalization with both the red metal and oil as their gold ratios broke higher-low trend lines (see graph below). 

Gold ratios descending towards historical norms (e.g., stabilizing gold price, rising copper price) signals that gold is checking back in the commodity hotel after a two-year run with the currency crowd. We have witnessed record and unsustainable gold ratios since the strong dollar era began in late-October 2014. As developed nations slowly replace aggressive monetary policies with fiscal stimulus, commodity prices should rise. This is further aided by increasing inflation expectations. 

Gold will likely stabilize in a range of $1,240 to $1,320 per ounce in the next 6 months (even though gold has dipped below that range this morning). 

My vote is up. Target gold price for next week is $1,240 per ounce; silver price, $17.48 per ounce 

Have a fun weekend and thank a veteran for his or her service!

Ain't worried about nuthin'

Chart to Watch

Here's a new chart to watch. Click on the image for a larger size:

Gold’s record rise against key commodities
in the strong dollar era 

Excerpt from the upcoming Winter 2016 Edition of the Mining Quarterly:

This chart is a record of oil and copper gold ratios for the last six years. October, 2010 was a relatively peaceful period when ratios were stable and close to historical norms following the market turbulence of the 2008-2009 financial crisis.

The chart indicates the percentage value change from that moment of calm. The China slowdown began to impact commodity prices in 2011. However, prices were protected to a degree by U.S. monetary policy that suppressed the value of the U.S. dollar. 

For example, even during periods a high volatility, copper prices rarely dipped below $3 per pound. This is a level above even the most optimistic forecasts these days. Two Federal Reserve quantitative easing programs (or QE, the printing of dollars to buy bonds) helped moderate gold ratios through October 2014 amid record gold peaks, crashing copper prices and $100-plus oil. This period is shown by the gray box in the chart. The Oct. 3, 2011 +50% extreme occurred as the gold-to-copper ratio peaked following the already noted U.S. debt crisis. The bottom of the box marks a -30% low for the gold-to-oil ratio. Wild days for sure but the Federal Reserve kept commodity storms inside the hotel. 

Trouble spilled onto the streets when the U.S. stopped printing money concurrent with a global crash in oil prices in late-2014. At the same time, other central banks tried to goose their stagnant economies with increasingly looser and experimental policies as the U.S contemplated raising interest rates. This divergence in monetary policy ushered in the current strong dollar era – a real headwind for dollarized commodities.

The value of gold relative to oil and copper headed north in a hurry. This year, the gold-to-oil ratio reached a record and unsustainable high Feb. 11 (up 180%); and for copper, Sep. 7 (up 80%). To give this some historical perspective, the average gold-to-oil ratio for the QE2 through QE3 period is 15.7 barrels per ounce. From 1986 through QE3, the average is 16.0. The February peak touched a jaw-dropping 47 barrels. Copper soared from 350 pounds per ounce six years ago to top out above 640.

Gold price in U.S. dollars rallied strongly as copper and oil fell at the beginning of 2016 scoring a nearly 30% gain by early-July. The yellow metal had left the commodity hotel and dominated major currencies as I explained in the Fall Edition of the Mining Quarterly. Very unusual times indeed. 

As 2016 comes to a close there are increasing signs that major central banks will methodically pull back from aggressive policies and those nations will look to fiscal stimulation to keep their economies energized. Oil and copper prices are on the rise given an extra boost by rising inflation expectations. Gold ratios in turn are falling from their lofty peaks as gold prices stabilize in a range of $1,240-$1,320 per ounce. It is important to note that the higher-low trendlines (dashed lines) have now been broken with declining gold ratios. So far go good - confident resource CEOs pass the gold test. Supply will slowly come into balance with demand and the yellow metal is checking back in the commodity hotel.

Newmont Mining pours first gold at Long Canyon mine

Nov. 11, 2016 1:48 PM ET|About: Newmont Mining Corporation ... (NEM)|By: Carl Surran, Seeking Alpha News Editor 

Newmont Mining (NEM -7.8%) says it poured first gold from its Long Canyon mine in Nevada ahead of schedule and below budget, and expects to declare commercial production next week. NEM says Long Canyon was completed two months ahead of schedule for slightly less than $225M, ~$50M or 18% below budget. Long Canyon, which NEM calls the most significant oxide gold discovery in Nevada in more than a decade, is expected to produce 100K-150K oz. of gold annually over an eight-year mine life at some of the lowest costs in its portfolio.

Cheers,

Colonel Possum

Photos by Mariana Titus if not otherwise noted