A better-than-expected jobs report for January has boosted markets this morning - 222,000 versus an expected 175,000 new jobs added. The unemployment rate is little changed at 4.8%. The U.S. Labor Department Employment Situation Summary, however, showed a slowing of hourly earnings growth compared to December - up 3 cents to $26.00 (average) compared to 6 cents in the prior month. This dampens of inflation expectations to some degree. Overall, the positive report didn't impact gold price that much with Comex presently trading at $1,218.4 per ounce. The week's high scored $1,227.5 on Thursday.
My input to the Weekly Kitco Gold Survey:
My vote is up. Target gold price $1,225 per ounce . Target Silver price $17.5 per ounce.
We see a flip-flop for gold compared to last Friday with the yellow metal maintaining solid gains across a wide set of assets - even with today's strong employment report. Gold made a 2-1/2 month high yesterday while the U.S. dollar made a 2-1/2 month low - a confirmation that in the early Trump presidency U.S. dollar strength/weakness is all-important to gold/currency trajectories.
Given a high positive gold correlation with the euro and negative compared to yen*, the trio of gold/euro/yen grow weaker or stronger as the U.S. dollar rises or falls. If we think of dollar expectations as a proxy for the uncertainty surrounding Trump initiatives and policies - a bad week for the new president becomes a good week for the trio [and vice-versa].
On a one-month basis the constancy and low volatility of euro in terms of yen (EUR/JPY) is further proof that dollar direction is currently more important than regional, national or central bank influences [graph below]. Gold price follows this trend given its high correlation with major currencies.
* On a one-month basis, there is an extraordinarily high positive gold correlation with the euro and negative correlation with the yen (+0.87, -0.95 respectively) EUR/JPY exhibits unusual constancy and low volatility compared to gold or euro or yen (range bound about EUR/JPY = 122, see above graph)
What this suggests is that gold is behaving as a currency. Additionally, gold & currencies are currently driven more by U.S. dollar expectations (and therefore President proclamations, tweets etc.) than regional, national or central bank influences. EUR/JPY ends up being roughly unchanged because it is the product of EUR/USD & USD/YEN. Taking out the dollar this way, shows that the euro & yen move together in strength/weakness.
In the new market parlance: For a "Trump-off" day the U.S. dollar weakens and the euro, yen & gold grow stronger together (given the gold correlations); vice-versa for a "Trump-on" day. We remember more normal days when euro weakness pushed investors into gold and yen strength given their safe haven status.
China traders returned from a week long Lunar New Year vacation without their rally caps as they came in to most assets taking risk off after Beijing unexpectedly raised short term interest rates. China equities and base commodities tumbled and the currency weakened after the PBOC [People's Bank of China] raised open market interest rates by 10 basis points. The latest increase came after the central bank raised rates on medium term loans in late January, the first time it had raised a policy rate since July 2011. Overnight the MSCI Asia Pacific Index fell 0.30% while the Nikkei closed close to unchanged. Shanghai Shares lost 0.60% by the close making some recovery from earlier losses. Euro bourses and base commodities are mixed off the early opening with the Red [copper] and Shiny [gold] Ones ignoring the support of a weaker dollar after China snubbed them this morning.(Morning pre-market brief, 2/3/17)
A key level for copper remains $5,800/tonne ($2.63 per pound). Comex copper is presently trading at $2.6380...a little too close for comfort!
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 strengthening slightly at 6.8649 USD/CNY.
Gold Price Outlook 2017
The question becomes whether 2017 will be a repeat of 2013 with gold losing value across a broad set of assets, which includes stocks, commodities and currencies, or stabilize in a range above $1,100. There are increasing signs that the latter case will prevail. Gold started the year nicely and should remain in a range of $1,125 to $1,320 per ounce*. Average gold price for 2017 should register above $1,200 per ounce.
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]. 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 $1,125 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 2/3/2017)
Colonel Possum & Mariana