"The history of Eureka lies in its future." - Lambert Molinelli, 1878


The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Friday, February 17, 2017

The President Trumps Yellen...Gold Above $1,240, Copper Stalls

Shootout - Bonnie & Clyde
Eureka, Nevada (December, 2011)

Frank Abercrombie Passes

Frank was a kind and gentle man with a sensitivity for Eureka folk's yards and gardens and all the little creatures that pass there. He will be greatly missed.

FRANK ABERCROMBIE (1934-2017) (Las Vegas Review-Journal)

Weekly Summary updated for 2/17/17 AM (something new!)

(click on table for larger size)

McEwen Ming (MUX) $4.23 per share 

General Moly (GMO) $0.65 per share; Moly oxide (LME) $6.92 per pound 

Friday, February 17, 2017 AM 

Morning Miners!

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

Cuprum 29, Mariana Titus (2011)

Janet Mirasola, Managing director for Sucden Futures Inc. NY, described key levels and recent drivers for copper price on Wednesday:

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

Click on the image for a larger size:

Gold in euro & yen terms regaining value post-election

Winter 2016 Edition Mining Quarterly

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:

Gold’s record rise against key commodities
in the strong dollar era (updated 2/17/2017) 

Excerpt from the just released Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper:

This chart [updated through this morning, February 17] 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. 

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...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 [i.e. plot traces remain below green horizontal dashed line]


Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted

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