Whoa! Remember when the words of the Federal Reserve Chairman reigned supreme for setting market direction? This week's $26 per ounce spread in gold price has more to do with market folks trying to decipher President Trump's comments yesterday than Janet Yellen's hawkish brief* to the House Financial Services Committee Tuesday.
My input to the Weekly Kitco Gold Survey:
My vote is up. Target gold price $1,250 per ounce . Target Silver price $18.1 per ounce.
Gold's performance was strong this week as the President's unscripted 77-minute press conference created enough uncertainty to trump Fed Chairman Yellen's hawkish words. The latter had dropped gold to a weekly low of $1,218 per ounce; yesterday's wide-ranging ramble brings gold to trade this morning above $1,240.
Other factors creating a 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.
Soaring stock markets and a a strong U.S. dollar bounce continue to be headwinds for the yellow metal. However, its 2-month uptrend was supported 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 [see chart below, Gold Price Outlook 2017].
Have a good weekend!
*Summary of President Trump's press conference & Fed Chief's Tuesday comments:
Trump, in unprecedented fashion, airs grievances in an epic 77-minute press conference (Allen Smith, Business Insider, 2/16/2017)
Fed Chair Yellen: 'Unwise' to wait too long to hike interest rates (CNBC Business News, 2/14/2017)
Waiting too long to raise interest rates would be "unwise" as economic growth continues and inflation rises, Fed Chair Janet Yellen told Congress on Tuesday.
Copper Rally Stalls
The Red One is holding just above $6,000 [$2.72 per pound] in London this morning as a strike at the world's largest copper mine, Escondida in Chile continues, this however after falling from a $6200 [$2.81 per pound] peak on news that workers agreed to go back to the negotiation table. .(Morning pre-market brief, 2/15/17)
This morning the red metal is below $6,000/tonne, trading presently at $2.693 per pound ($5930/tonne) as the rally stalls for the week.
However, copper has enjoyed a 36% 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.
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 weakening slightly at 6.8639 USD/CNY. So far so good.
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 2/17/2017)
Colonel Possum & Mariana