Gold continues on its path upwards but we have some red metal warnings...watch silver.
My input to the Weekly Kitco Gold Survey:
My vote is up. Target gold price $1,265 per ounce . Target Silver price $18.4 per ounce.
Another strong week for gold as a copper reversal to the downside and plummet in 10-year yields* suggest the President's signature tax reform plan and infrastructure plans may be realized later than originally expected. Comments by the new Treasury Secretary implied that the former may not be rolled out until this summer; infrastructure spending will now likely begin in 2018 [Update: Comex copper $2.68 per ounce, 10-year yield 2.3170%, Friday close]
Comex gold broke the key-$1,250 level yesterday, now trading at 1,257.9 per ounce. The yellow metal is on a march to $1,280 and is likely to break $1,265 next week. Silver is also showing strength with a fall in the gold-to-silver ratio supporting an $18.4 per ounce level in the near term.[Update: Comex gold $1,258.3 per ounce, silver $18.339 per ounce, Friday close]
Soaring stock markets and a a strong U.S. dollar bounce stalled on this re-calibration of expectations but could reemerge as headwinds for the yellow metal. However, its 3.5-month high this morning ($1,261.2) was allied by solid value gains for the week compared to copper, oil and the broader Bloomberg Commodity Index (BCOM) [see Weekly Summary above].
Gold also rose in terms of major currencies euro and Japanese yen - all very bullish indications [see chart below].
Factors creating a solid floor for gold above $1,200 per ounce are fears of a "Frexit" if the French FN party prevails in upcoming elections and the Greek bailout review.
Have a good weekend!
*Gundlach expects U.S. 10-year T-note yield to drop below 2.25 percent (Reuters, 2/25/2017)
Other global assets however have reacted to short term corrections as metals and mining shares were affected by yesterday's sudden fall for the Red One even though a strike at Escondida, the world's biggest copper mine is entering its third week. The Red One yesterday fell over 3% triggered by a story from Axios' Mike Allen saying that the promise of infrastructure spending that had been made immediately following the election last November may be delayed until 2018 taking the froth off a copper rally that began with that thought and carried through with the added burden of supply disruption at Escondida in Chile and Grasberg in Indonesia.(Morning pre-market brief, 2/24/17)
Yesterday Comes copper reversed to the downside (i.e. lower high, lower low, lower closing price) breaking the 2017 uptrend. This morning the red metal is below $6,000/tonne, trading presently at $2.654 per pound ($5851/tonne).
However, copper has enjoyed a greater than 30% rise in price over the last 12 months. The Bloomberg Commodity Index (BCOM), including everything from animals that oink to metals that shine, is up over 20%. For metals the reasons include increased global infrastructure spending, Chinese attempts to cut excess capacity and the closure of some large mines. A significant portion of the rally has come after the election of Donald Trump with his promise of massive infrastructure spending in the U.S. If there are delays in implementation, copper prices will feel the impact in 2017.
The fate of the Chinese yuan remains a key tell for gold and copper - a material drop in valuation could boost gold and depress copper prices. Aggressive liquidity tightening by the People's Bank of China (PBOC) has eased, stabilizing the yuan below 7 USD/CNY. However, defending their currency has brought China foreign reserves to a 6-year low. Now that the Lunar New Year holiday is over, we'll see if this vigorous defense is sustainable. This morning, the yuan is steady at 6.8644 USD/CNY. So far so good.
Gold Price Outlook 2017
Gold started the year nicely and should remain in my newly revised range of $1,180 to $1,320 per ounce*. Average gold price for 2017 should print above $1,200 per ounce. This morning's peak at $1,261.2 is a 3.5 month high.
An important gold ratio to watch is gold-to-S&P500 or AUSP. The ratio bottomed in early-December of 2015 and reversed to a bullish trend, peaking February 11, 2016. It bottomed again December 20, 2016 but has been trending higher since. Confirming a double-bottom in the coming months would be a significant positive for the lustrous metal.
Gold has gained ground on the embattled euro and yen. Post-election, gold in euro and yen terms are converging and safely above 2013 lows [chart below] and are both above pre-election levels. Additionally, gold ratios relative to copper and oil are stabilizing near historically less extreme levels which is a healthy sign [Chart to Watch, below]. Geo-political events and/or a bump in inflation expectations could restore glitter to gold in 2017.
Gold near my low-range of $1,180 per ounce-level is a tempting "buy."
(please do your own research, markets can turn on you faster than a feral cat!)
*My pre-election October range for gold price was $1,240 to $1,320 per ounce, Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper
Elko Daily Free Press Editor Marianne Kobak McKown has put together another dandy. The Winter Edition of the Mining Quarterly has great columns on Newmont Mining Corp.'s Twin Creeks Mine, Cripple Creek and Victor Mine (Colorado), Barrick Gold Corp.'s Cortez Hills, EP Minerals' unique product and the Kinross expansion of Bald Mountain.
Chart to Watch
Here's an importanat chart to watch. Click on the image for a larger size:
in the strong dollar era (updated 2/24/2017)
Colonel Possum & Mariana